wnat does the model developed by Diego's treasury group recommend Tor Ulego's optimal capital structure GOING FORWARD? The treasury department used the Monte Carlo stimulation which was based on the outcomes of the static trade off theory to enable the company to utilize the tax shield on the interest costs which can be achieved by taking on more debt. It did 10,000 iterations and did a graph taking into the account the interest coverage ratio, PV of the taxes paid and distress costs. The optimal capital structure for the company would be at the point where the cost of distress and the tax paid are the least. This can be achieved at the range of 4.2 based on the inputs from gurel and figure 2. This means that Diageo has got a provision to add more debt or take more debt in its capital structure. Historical Capital Structure '- Followed a conservative capital structure and focused more on the same as it is the approach followed by UK companies. Had more equity and less debt in their capital structure. '- Focused on maintaining a high credit rating and was more concerned with the decrease in the credit rating due to more debt in the capital structure. '- Maintained an interest coverage ratio of between 5 to 8