The document defines capital structure as the combination of debt and equity used to finance a company's long-term operations. It discusses three theories of capital structure: the net income approach, net operating income approach, and weighted average cost of capital approach. For each approach, it provides examples calculating a company's value, cost of equity, cost of debt, and overall cost of capital for different debt-equity mixes. The key point is that according to these theories, a company can optimize its value and reduce its overall cost of capital by selecting an optimal proportion of debt versus equity in its capital structure.