Now, we can start analyzing how much equity and debt capital we should raise in the capital market to support demand (new projects and businesses or by replacing existing machinery that is worn out or obsolete) and supply (generated from profit). Our projection of optimal capital structure is time-bound; that is, it concerns the optimal mix for a given period, such as the next year. We can certainly expand it to cover the next 5 years. The formula used to forecast business performance is as follows:
Revenue growth * Fixed Capital Required / Sales
The optimal capital structure is the capital structure that delivers the lowest possible cost of funding but delivers the required capital to generate values within the firm.
In this section, we will learn how to implement a machine learning model that can find the optimal capital structure that delivers the lowest possible cost...