GB 550 Unit 5_Assignment. very correct

What is meant by capitalization? What is meant by a firm’s capital structure? For financial planning purposes, explain why either book or market value should be used to determine the firm’s capital structure. What is capital structure theory? Capitalization is the process of evaluation and maximizing a company’s capital structure i.e. debts and equities. Capital Structure is a firm’s combination of deb and equity. Capital structure is used to determine the thresholds for debt and equity a company is willing to accept. While both book value and market value offer meaningful information, they are used in different scenarios in business. For financial planning purposes, market value is best. Investors in business often rely on the market value rather than book value when evaluating a company (Seth, 2010) According to Brigham & Ehrhardt (2019) capital structure theory states in a world with no taxes, the value of a firm and its WACC are unaffected by its capital structure. 2. Discuss the following issues relating to business risk and financial risk.