Capital Structure

The mix of debt and equity financing used by an organization is called its capital structure. Many managers struggle with finding a balance between these two options. It is a critical decision, as it impacts the organization’s assets, liabilities, and bottom line.

There is a cost associated with raising money to finance capital projects (cost of capital). The main objective is to minimize the cost of capital. What approach would you use to determine the optimal capital structure? Defend your position.