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The 'Optimal Capital Structure'

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Finance academics and theoreticians as well as practitioners are still debating the issue of the 'optimal capital structure'.

The overall notion is that there exists an optimal financing package but that this 'package' is not the same for all companies. Theory focuses on the 'big issues' - the debt-equity issue - without going in detail into the composition of debt and the structure of equity.

Why do you think the issues might be different for a new - entrepreneurial venture?
Do you believe the concepts that are reviewed in the present module can be applied to a real business situation?

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The solution discusses the 'Optimal Capital Structure.'

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The issues are different for a new-entrepreneurial venture as compared to an existing firm with an established history because for a new venture, there is no history of cash flows, revenues, cost structure, etc. and every decision is dependent on assumptions and forecasts about the future. Hence, the ...

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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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