Question

When debt increases holding assets constant, which of the following occur? Stockholders' Equity declines and interest expense increases Stockholders' Equity increases and interest expense declines Cannot be determined from the information provided Stockholders' Equity declines and interest expense declines Stockholders' Equity increases and interest expense increases

Answer 1

When debt increases holding assets constant

Answer Option 1

Stockholders Equity declines and interest expenses increase

Shareholders Equity is equal to Total  Assets Less Total Liabilites.Hence when the liability increases in the form of debt the shareholders equity will derease/declince.An increase in debt  will increase the interest cost.