Modeling Optimal Capital Structure Using Linear Programming: A Case Study of Vedanta Ltd

Determining the optimal capital structure is a critical decision for any corporate entity, as it directly affects the firm’s cost of capital, financial risk, and value creation. This study develops and applies a Linear Programming (LP) model to identify the optimal mix of debt and equity financing for Vedanta Ltd., a leading diversified natural resources company in India. The model minimizes the firm’s weighted average cost of capital (WACC) while satisfying constraints related to leverage, interest coverage, and non-negativity. Financial data from Vedanta Ltd.’s annual reports are used to formulate and solve the LP model. Results reveal an optimal capital structure that balances the trade-off between risk and return, offering actionable insights for financial managers to enhance shareholder value. The study demonstrates the efficacy of LP as a decision-making tool for capital structure optimization under real-world constraints.