When a firm alters its capital structure to include more or less debt (and, in turn, less or more equity), it impacts which of the following?
A) the residual cash flows available for stockholders
B) the number of shares of stock outstanding
C) the earnings per share (EPS)
D) all of these choices are correct.

Question

Quizplus · Accepted Answer

Changing a firm's capital structure affects the residual cash flows available to stockholders because the amount of debt influences the interest payments and thus the remaining profits for distribution. It can also impact the earnings per share (EPS) as the interest expense changes, altering net income and potentially the number of shares outstanding if the capital structure change involves issuing or repurchasing shares.

When a Firm Alters Its Capital Structure to Include More