in its simplest terms, the Optimal (target) Capital Structure is the Debt-to-Equity ratio of the firm which results in the lowest possible WACC (weighted average cost of capital). By acheiving this, we maximize the value of the firm. At this point the firm is also maxmizing the tax benefits of its debt while minimizing the possibility of financial distress.
check this out: www.business.uiuc.edu/gpinteri/capitalstructure.pdf
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