Changing the capital structure of the firm will affect the riskiness inherent in the firm's common stock,which will affect the return demanded by stockholders and the stock's

Question

Quizplus · Accepted Answer

Changing the capital structure of the firm, such as increasing the amount of debt, can increase the financial risk of the firm. This increased riskiness will impact the return that stockholders demand for the firm's common stock, as they will require a higher return to compensate for the added risk. Additionally, changes in the capital structure may also impact the dividends or other distributions paid to stockholders, further affecting the return on the stock.

Changing the Capital Structure of the Firm Will Affect the Riskiness