Why does a company with a higher debt ratio tend to have greater financial risk?

• A. If a firm has a higher debt ratio it is because the company has a higher investment in property, plant, and equipment, so its depreciation is relatively high.
• B. If the principal or interest cannot be repaid, then a company can be forced into bankruptcy and creditors may not get fully repaid.
• C. The company's cost of debt is less than its cost of equity.
• D. Its sales are more cyclical than those of companies with lower debt ratios.