Capital Structure

A company’s capital structure is the mix of debt and equity the company uses to finance its business. The goal of a company’s capital structure decision—the choice between how much debt and how much equity a company uses in financing its investments—is to determine the financial leverage or capital structure that maximizes the value of the company by minimizing the weighted average cost of capital. The weighted average cost of capital (WACC) is given by the weighted average of the marginal costs of financing for each type of financing used.

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