Several Factors affect a firms ability to pay a dividend. Three such factors are described in the table below: profitability (an increase in net income), investment opportunity, and capital structure ( an inicrease in the debt ratio). Use the table to indicate how a firms ability to pay a dividend is affected by the factors described. Consider each factor in isolation, with everything esle held the same.

Factors Effects on ability to pay dividends

Net income increases? (a). Decrease the ability to pay dividneds (b.) Increase the ability to pay dividends

More profitable investment opportunities are availabe? (a). Decrease the ability to pay dividneds (b.) Increase the ability to pay dividends

The firm increases its debt ratio? (a). Decrease the ability to pay dividneds (b.) Increase the ability to pay dividends