Determining Debt-Equity MixThe weighted average cost of capital (WACC) is a key percentage used to determine an appropriate debt-equity mix within a company's capital structure . El Café, a fictional business, was used in a simulation as the primary example to determine feasible financing methods for proposed franchise expansions. El Café was faced with three major decisions in which the WACC was used as a benchmark to select the most appropriate form of financing based on the company's existing capital structure. In today's business world, real companies face similar decisions and they must be aware of the importance of using the WACC figure before making final investment or financing decisions. WACC can push companies to the brink of bankruptcy or prepare them to increase their profitability and return on investment. This summary will incorporate a simulation example to illustrate the benefits of using WACC to assist in the capital structure decision-making process. The year 2001 offered slight expansion opportunities for El Café, a small coffee shop. The debt-equity mix was set at seventy percent debt and thirty percent equity. This decision was made on the basis that debt costs less than equity; thus, this decision allowed the owner to minimize the WACC to 8.65% for the $400,000 business. The year 2004 offered new opportunities for expansion. After considering all expansion and financing options, a 7-city expansion financed solely by debt was found to be the best option. This option allowed the highest rate of return compared to WACC. This is very important because the WACC acts as a discount rate to value subsequent cash flow amounts (Brealey et al., 2004, p. 321). 2005 required rapid action to rebalance the capital structure of El Café, which was in financial difficulty. peril. To achieve this financial rebound, the proportion of debt was reduced to reflect El Café's initial capital structure, consisting of seventy percent debt, placing debt at 63.42%. This feat was accomplished through the sale of real estate and vehicles. These assets were not necessary for the operation of El Café. The owner also chose to forgo debt renegotiation because this option was only temporary; furthermore, it would also increase interest rates and WACC. It is for this reason that the renegotiation was rejected; therefore, the WACC was lowered to 10.07%, bringing El Café back on its feet. WACC is essential to an organization's financial success..