How can a firm minimize its Weighted Average Cost of Capital (WACC)?

Minimizing a firm's Weighted Average Cost of Capital (WACC) primarily involves optimizing the capital structure, specifically the mix of debt, equity, and other securities that the firm uses to finance its operations. The WACC is calculated as the average rate of return required by all of the company’s capital providers, weighted by the proportion of each financing source in the overall capital structure.

When a firm leans more toward debt financing, it can reduce its WACC because debt typically has a lower cost compared to equity. This is primarily due to the tax shield provided by debt interest payments, which are often tax-deductible, making it cheaper for firms to use debt rather than equity. Moreover, increasing the proportion of debt in the capital structure, to a reasonable extent, can lower the overall cost of capital, thus minimizing WACC.

In contrast, while increasing revenue streams, reducing operational costs, or maximizing market share might improve a company's profitability and operational efficiency, they do not directly impact the composition or costs associated with the capital structure. These strategies can lead to higher earnings, but to specifically address WACC, adjustments to how the firm finances itself are necessary.