Debt Capacity Is Often Offered as a Reason for a Stock

Debt capacity is often offered as a reason for a stock price to decline when additional equity securities are issued.The primary reason that supports this argument is that:

A) the high issue costs of a debt offering must be paid by the shareholders.
B) an additional equity issue reduces the debt capacity of a firm.
C) management feels the probability of default has risen,which limits the firm's debt capacity and thus an equity issue is necessary.
D) unless additional debt is issued in the future,stock dividends will tend to decline after the new securities are issued.
E) additional equity is only issued when a firm cannot meet its current debt obligations,thereby signaling the firm is on the verge of bankruptcy.

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