When the firm's real and financial decisions are separable, capital structure changes affect the degree of financial leverage (DFL), but not the degree of operating leverage (DOL). When real and financial decisions interact, on the other hand, capital structure changes affect both DOL and DFL. The debt induced changes in DOL and DFL are determined simultaneously and their signs depend on the relative sizes of the debt elasticities of real capital and contribution margin. These changes are generally of the same sign and this pushes the firm into a new risk-class. A trade-off between DOL and DFL may be observed only when the debt elasticity of real capital is less (greater) than the debt elasticity of the contribution margin and both elasticities are less (greater) than one.