Formula for free Cashflow model = Free cashflow/(1+ Weighted average Cost of Capital)

The weighted average cost capital is overall cost of capital for all funding sources in a company. Including stocks and debts.

WACC = %of debt* after tax cost of. Debt + % stock * Cost of stock

Increasing debt or reducing debt will be effect WACC, So, that will effect the value of the firm.

Changes in debt also effect the interest expense of firm, that also lead to change in free Cashflow

The impact of Capital structure on value depends upon the effect of debt on Weighted average Cost of Capital and Free Cashflow of the firm