Your client works for a firm that creates monthly financial statements and monthly financial statement forecasts. In this forecast, long$-$term debt is $1000$ kUSD and the interest rate on the long$-$term debt is $10\%,$ compounded monthly. The monthly interest payment is calculated based on the balance in the long$-$term debt line item at the end of the month times the periodic interest rate.

Note that the interest payment is subtracted from EBIT on the income statement, reducing NI and ultimately the earnings retained by the firm.

Fewer retained earnings means that the firm needs to borrow more. How does this impact the firm's borrowing and retained earnings overall?