Impact of Capital Structure on Financial Distress

ABC Corporation is currently facing financial distress due to a significant drop in revenues attributed to a recent market downturn. The firm is considering its capital structure to alleviate some of the pressures caused by its financial situation.

In evaluating its options, management is assessing how changing the company's leverage might impact its likelihood of bankruptcy, as well as its ability to raise additional capital.

Which of the following statements most accurately reflects the relationship between financial distress and capital structure decisions?