Final answer:
The correct term referring to the mixture of debt and equity used to finance a corporation is the capital structure. This aspect of corporate finance determines the balance between equity and debt that a company uses for funding its activities and has a significant impact on its risk and valuation.
Step-by-step explanation:
The choice of the proper mixture of debt and equity, used to finance a corporation, is commonly referred to as the capital structure. An essential part of corporate finance, capital structure concerns the balance between the types of equity capital and debt that a company uses to fund its operations and growth. This concept is vital as it can influence both the risk and value of a business. Companies have various options for raising financial capital, including early-stage investors, reinvesting profits, borrowing through banks or bonds, and selling stock.
The financial leverage refers to the use of borrowed funds to increase the potential return of an investment. The debt-equity ratio is a specific financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. The term funding mix is a broader term that encompasses all sources of funding a firm may use, but it is not as widely used in a formal context as the term capital structure.
Each approach to raising capital has trade-offs. For example, borrowing through debt like bank loans or bonds involves a commitment to make regular interest payments, which can be burdensome if income is insufficient, but it allows the firm to retain full control. In contrast, selling stock decreases control over the company as it involves sharing ownership with the public and being accountable to a board of directors and shareholders.