The Cost of Capital is of great importance to senior management, the board of directors (also a part of senior management), and investors. Why, because it drives profitability long-term for the corporation and thus affects return on investment. Achieving a balance in the use of debt and equity financing of long-term capital investment becomes a major focus for senior management.

1. What are some of the major concerns that senior management faces in deciding on the mix of Debt to Equity?

2. How do the Pecking Order and Tradeoff Theory of Capital Structure decisions affect the decision process?

3. Do small companies approach capital structure decisions differently than large corporate entities? If so then how and why