Changing the capital structure by adding debt will not:

Question

Quizplus · Accepted Answer

Adding debt to a company's capital structure increases the financial leverage, which can increase the return that shareholders require due to the increased risk (A). It also increases the default risk (B) because the company has higher debt obligations to meet. Consequently, this increases the risk to debtholders, not decreases it, making C the correct choice. Additionally, as the company takes on more debt, lenders perceive it as riskier, which can lead to an increase in the cost of debt (D).

Changing the Capital Structure by Adding Debt Will Not