CHAPTER 3
Optimizing the Capital Structure: Advantages of an Alternatives-Based Capital Allocation Framework
Before delving into the pros and cons of the various capital allocation options available to a firm, it is essential to first explore the question of how to optimize a firm’s capital structure. A capital structure refers to the mix of equity and debt that is used to finance the enterprise. This process also plays an important part in determining how much actual capital the firm has to deploy on an annual basis. Optimizing a firm’s capital structure is critical to balancing growth and returns with risk and volatility of cash flow.
There is a group of firms that will likely not benefit from this chapter. In many regulated industries, the ...
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