What is a consequence of high debt levels in capital structure?

High debt levels in a company's capital structure typically lead to higher financial risk. This occurs because as a company takes on more debt, it increases its obligation to make regular interest payments regardless of its financial performance. High levels of debt can lead to greater volatility in earnings, as fixed interest expenses must be paid even during downturns in business.

In this scenario, lenders and investors often perceive the company as having a greater risk of default, which can translate into higher required returns on equity and debt. Consequently, the company's cost of capital may rise and its stock price can become more volatile, reflecting the increased uncertainty surrounding future cash flows and debt repayment capabilities.

The other options, such as increased cash flow and lower interest rates, are generally unfounded when high debt levels are in place. While improved market perception might be achievable under some circumstances, it is often negatively impacted due to the heightened financial risk associated with excessive leverage. Therefore, the primary consequence of high debt levels is indeed the increased financial risk faced by the organization.