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.
