How do you decide the optimal debt allocation?

Question

Accepted Answer

Optimal debt allocation is determined by considering factors such as cost of debt, risk tolerance, cash flow projections, and capital structure goals.

Consider the cost of debt, including interest rates and fees, to determine the most affordable option.
Assess the company's risk tolerance and financial stability to determine the appropriate level of debt that can be comfortably managed.
Evaluate cash flow projections to ensure that debt payments can be met without causing financial strain.
Align debt allocation with capital structure goals to maintain a healthy balance between debt and equity.
Utilize financial models and sensitivity analysis to test different debt allocation scenarios and their impact on overall financial health.

How do you decide the optimal debt allocation?

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