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. Workshop Talking Points Check anl that apply. Interest paid on debt is deducted from a firm's pre-tax income, thus reducing the amount of taxes that it owes. In an event of liquidation, creditors will get their claims over a firm's assets before common shareholders. An increase in debt financing beyond a certain point increases the risk of bankruptcy and financial distress. A decrease in debt financing increases the risk of bankruptcy, and managers are encouraged to invest in high-risk projects. An increase in debt financing increases the taxes that a company owes