Understanding the impact of debt in the capital structure Suppose you are conducting a workshop on capital structure decisions and you want to highlight certain key issues related to capital structure. Your assistant has made a list of points for your session, but he thinks he might have made some mistakes. Review the list and identify which items are correct. Check all that apply. Workshop Talking Points An increase in debt financing decreases the risk of bankruptcy. An increase in the risk of bankruptcy is likely to reduce the firm's free cash flows in the future. The pretax cost of debt increases as the firm's risk of bankruptcy increases. Risks of bankruptcy increase management spending on perquisites and increase agency costs. An increase in debt financing beyond a certain point is likely to increase the cost of equity