 Generally, a firm prepares its balance sheet using the book values of its assets and liabilities. Now these book values are based on historical values or the historical cost. By historical cost means the cost at which the buying of assets or the acquiring of liabilities had taken place. So such form of balance sheet is termed as a conventional balance sheet. Now apart from conventional balance sheet prepared on historical cost basis, a balance sheet can also be prepared on market values of the assets and liabilities and such type of balance sheet is termed as a market value balance sheet. In fact, it is M2 or the Modigliani and the Miller proposition 2 that allows a firm to prepare its balance sheet using the market values of its assets and liabilities. Such balance sheet carries the firm's conventional assets and liabilities and other intangible assets like human capital, firm's brand value and such other intangible assets at their current market price. Such type balance sheet follows an approach that the value is basically created by the bunch or the choice of investment pools by the firm and it is not the choice of the capital structure that creates a value for the firm. Using the market value based balance sheet, the market value of equity of such firm can be determined by subtracting the market value of debt and other liabilities from the market value of the assets of the firm. What is meant by leveraged re-capitalization, basically leveraged re-capitalization means the repurchase of own shares by a firm using the debt proceeds. To understand this phenomena, we have an example. Suppose we have an all equity firm with outstanding shares of 50 million, the market value per share is $4, market value of equity is then $200 million which is the multiplication of 50 million shares with the per value market share of $4. So we can say that in an all equity firm, the market value of equity is equal to the market value of assets. So in other words, the value of the firm's balance sheet is equal to $200 million in our case. Now, assume that firm is planning to go for the borrowing of $80 million and this means that on one side on the asset side, there is collection of $80 million, but on the other side, there is an occurrence of liability by the same tune. Now this means that there is no change on the market value of equity of the firm. So when the firm goes for the share re-purchase by this, by 20 million of its shares with the cash proceeds of $80 million, this means there is a decrease in the asset side by $80 million and there is also a corresponding decrease in the market value of the equity of the firm that is by $80 million, but there is no change on the liabilities of the firm. So we say that at the end there is no change in the balance sheet structure of the firm. This means that the share price may remain unchanged. How? The remaining equity of the firm at its market value is $120 million and the remaining outstanding shares of the firm are 30 million shares. So the market value per share comes to $4 each. This means that selling of debt for $80 million to buy $20 million of equity shares for the same amount of $80 million. So this is the transaction of selling of the debt and buying of the equity shares means the net present value of this transaction is zero. In other words, the cost of incurring this transaction is equal to the benefit derived from this particular transaction.