An EBIT-based model of dynamic capital structure is presented, analyzing how firms adjust debt levels over time to optimize leverage ratios and tax benefits. The model considers the option to increase future debt levels, which significantly enhances tax advantages and aligns optimal leverage ratios with empirical observations. A key feature of the model is its scaling property, which allows for simple closed-form expressions for security prices even when the optimal strategy spans multiple restructuring periods. The model assumes that EBIT flows are invariant to capital structure changes, enabling consistent treatment of all claimants (equity, debt, government) to future EBIT. This approach captures dynamic features of the framework through a scaling factor that accounts for both the growth of cash flows and the risk of default. The model also addresses the issue of tax benefits to debt, showing that they are measured as flows rather than value increases. The framework incorporates both corporate and personal taxes, and it accounts for the fact that tax benefits are not always fully realized due to loss offset provisions. The model demonstrates that the optimal capital structure strategy depends on the firm's ability to adjust debt levels in the future, leading to more realistic predictions of leverage ratios and credit spreads. The model also considers the impact of restructuring costs and the distribution of assets among claimants, showing that EBIT value remains invariant to capital structure choices, though its distribution changes. The model's results are compared to previous studies, highlighting its ability to capture dynamic aspects of capital structure decisions and provide more accurate estimates of tax benefits to debt.An EBIT-based model of dynamic capital structure is presented, analyzing how firms adjust debt levels over time to optimize leverage ratios and tax benefits. The model considers the option to increase future debt levels, which significantly enhances tax advantages and aligns optimal leverage ratios with empirical observations. A key feature of the model is its scaling property, which allows for simple closed-form expressions for security prices even when the optimal strategy spans multiple restructuring periods. The model assumes that EBIT flows are invariant to capital structure changes, enabling consistent treatment of all claimants (equity, debt, government) to future EBIT. This approach captures dynamic features of the framework through a scaling factor that accounts for both the growth of cash flows and the risk of default. The model also addresses the issue of tax benefits to debt, showing that they are measured as flows rather than value increases. The framework incorporates both corporate and personal taxes, and it accounts for the fact that tax benefits are not always fully realized due to loss offset provisions. The model demonstrates that the optimal capital structure strategy depends on the firm's ability to adjust debt levels in the future, leading to more realistic predictions of leverage ratios and credit spreads. The model also considers the impact of restructuring costs and the distribution of assets among claimants, showing that EBIT value remains invariant to capital structure choices, though its distribution changes. The model's results are compared to previous studies, highlighting its ability to capture dynamic aspects of capital structure decisions and provide more accurate estimates of tax benefits to debt.