[Verse 1] Corporate treasurers gather 'round the boardroom table Weighing debt against equity, mapping what's sustainable Thirty percent borrowed funds might amplify returns But push too hard and bankruptcy becomes your greatest concern [Chorus] Capital structure, mix it right Debt brings tax shields, equity brings might WACC descends when leverage climbs But financial risk compounds with time Balance the blend, optimize the cost Modigliani-Miller showed what's gained and lost [Verse 2] Interest payments slice your taxes, government subsidies While shareholders demand their premium for uncertainties Trade-off theory weighs the benefits against distress Pecking order says retain earnings, borrow second-best [Chorus] Capital structure, mix it right Debt brings tax shields, equity brings might WACC descends when leverage climbs But financial risk compounds with time Balance the blend, optimize the cost Modigliani-Miller showed what's gained and lost [Bridge] Times interest earned ratio falling fast Debt-to-equity climbing past Industry benchmarks, covenant thresholds Financial flexibility, worth more than gold [Verse 3] Asymmetric information drives the funding choice Management signals confidence, markets hear that voice Agency costs emerge when bondholders clash with shares Optimal structure shifts with cycles, economic wears [Final Chorus] Capital structure, mix it right Debt brings tax shields, equity brings might Beta rises, cost of equity soars While bankruptcy costs knock at your doors Balance the blend through market storms Perfect capital structure transforms [Outro] From conservative to aggressive, find your company's sweet spot Where marginal benefits equal marginal costs you've fought
← Weighted Average Cost of Capital (WACC) | Dividend Policy and Distribution Decisions →