1. Capital structure decisions and firm value Aa Aa E Why focus on the optimal capital structure? A company's capital structure decisions address the ways a firm's assets are financed (using debt, preferred stock, and common equity capital) and is often presented as a percentage of the type of financing used. As with all financial decisions, a firm should try to establish a capital structure that maximizes the stock price, or Shareholder value. This is called the optimal capital structure; it is also the debt-equity mix that: Maximizes the company's net income Maximizes the firm's dividends Maximizes the firm's weighted average cost of capital Minimizes the firm's weighted average cost of capital