Distribution decisions are complicated and involve the understanding of critical strategic factors that affect the policy and value of a company. Thus, the management of any company has to consider the constraints on dividend payments, the availability and cost of alternative sources of capital, and other external factors when they create and implement their distribution policy. Consider the following restriction: Restrictions in debt agreements that state the maximum amount of dividends that can be paid in any year. Based on your understanding of the constraints on dividend payments, identify the type of constraint this condition represents. Assume that all other factors are held constant. Excess earnings accumulation tax O Capital-impairment restriction Growth prospect constraints Bond indenture Along with several constraints, several internal factors within a company and external macroeconomic factors affect a company's dividend policy. In the table, identify which factors, in general, tend to favour high or low payout ratios. Favours a Favours a High Payout Low Payout Factor A company recorded high retained earnings but has very little cash and other liquid assets. A company had stable earnings in the past and expects stability in the future. A company expects to require funding in the future and wants to avoid the risk of dilution with the issuance of new shares. Having the ability to accelerate or delay projects makes it for a company to adhere to a stable dividenc policy