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Capital & valuation
Capital structure
The mix of debt and equity that funds the business. Debt is cheaper and keeps ownership but must be serviced; equity is expensive and permanent but survives a bad year.
Owned by: VP / CFOTest band: VP / CFO
In practice
The right amount of debt is what the worst plausible year can service. Size it from the downside case, not the base case.
The kind of thing the test asks
- How much debt should a business carry?
- When is equity the right money even though it is the most expensive?