What is considered ideal capital structure for a company ?

Capital structure of a company can be in form of debt or equity, or what is typical-> combination of both.

As per the traditional approach, 'moderate' degree of debt can lower firm's overall cost of capital, and increase firm's value.

Here with moderate amount of debt, even with initial increase in cost of equity, it is more than offset by lower cost of debt.

Subsequently, as debt increases-> Shareholders perceive increased risk -> Cost of equity rises (with increase in opportunity cost) -> Then comes a point where advantage of reduced debt cost is more than offset by more expensive equity.

This is shown in the attached graph (sorry for bad handwriting :)) of cost vs debt- > Optimum leverage is the curve within the dotted lines. See how Ko- Overall cost of capital changes with increased Ke- equity cost of capital, and Kd- debt cost.