Debt-Equity Mix Simulation: El Café

Debt-Equity Mix Simulation Summary Introduction Finding the right balance is important. When talking capital structure decision, one must get the right blend of debt and equity. In this simulation provided by the University of Phoenix, I was asked to use the Weighted Average Cost of Capital (WACC), to find the optimal debt-equity mix for a café business known as El Café. During the simulation what seemed optimal at first was quickly …

…one a lot about how WACC impacts a business. When I took a large amount of debt out, I was very close to bankruptcy even though my WACC was low. The end solution was altering the capital structure by either increasing or decreasing equity or debt as appropriate. This simulation takes one through the various stages of an evolving business. If one can choose the right debt-equity combination and optimize WACC, one will find success.