Final answer:
The specific mixture of long-term debt and equity that a firm chooses to use is called its capital structure. When deciding between borrowing or issuing stock to raise financial capital for a major expansion, factors such as control, repayment obligations, ownership, and shareholder expectations must be taken into account.
Step-by-step explanation:
The specific mixture of long-term debt and equity that a firm chooses to use is called its capital structure. Capital structure refers to the way a company finances its operations by utilizing a combination of debt and equity. Debt refers to borrowed money that must be repaid with interest, while equity represents ownership in the company.
When it comes to raising financial capital for a major expansion, the preference for borrowing or issuing stock depends on several factors. Borrowing allows the firm to maintain control of its operations and decision making, but it comes with the obligation of repaying the borrowed amount and interest. Issuing stock involves selling ownership shares to investors, which can provide a significant influx of capital, but it means giving up partial ownership and being subject to the decisions and expectations of shareholders.
Ultimately, the decision between borrowing and issuing stock depends on the firm's financial situation, growth goals, risk tolerance, and the preferences of the business owner.