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Recapitalization of a company's equity value can occur for many reasons, but the primary one is that losses have led to a company's "undercapitalization," meaning not enough invested capital to carry out the company's operations, take necessary write offs of discontinued or unprofitable lines of business, and yet have enough money to fund ongoing operations. Generally an investor comes in who makes the necessary investment (and it doesn't have to be all equity, debt is used as well) tales a "position" in the company, expecting a reasonable reward in increased stock value or in the investor's investment over a period of time.

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