Understanding the concepts Essay Example | Topics and Well Written Essays - 500 words - 1

Understanding the concepts - Essay Example And, thus, it ultimately assists the management to arrive at a decision. 2. According to Whittington and Delaney (2010), the primary benefit of the debt financing is that it allows the firm owners to retain full power and control over their business dealings (p.220). Debt financing does not involve complex reporting processes and, therefore, it is easy to administer. In contrast, this concept would not be beneficial for small businesses as they may find difficulty in obtaining access to potential financial sources. In addition, it would be an uneasy task for small firms to make regular monthly interest payments. Generally, organizations tend to issue stocks rather than bonds to generate funds because bonds are just debt securities while the stock is a capital asset. More precisely, bond issue would further contribute to the firm’s liability as compared to stock issue. 3. According to Harle, Luders, Pepanides, Pfetsch, Poppensieker, & Stegemann (2010), safer investments or investments having the least uncertainty may generate lower average returns, whereas investments having more uncertainty or risky investments would bring higher average returns. Hence, the level of risk a firm takes can have a great influence on its volume of revenues. Thus, financial returns are related to risk. 4. â€Å"Beta† is the blended, overall return of a particular asset type, which may be divided further by market, sector or some other organization, such as size† (Fraser-Sampson, 2011, p.164). In other words, it is the tool used for measuring and comparing the volatility of a security or portfolio against the market as a whole. â€Å"Beta† is computed by using regressions analysis. The â€Å"beta† higher than 1 indicates that the security’s price will be more volatile, while the â€Å"beta† less than 1 indicates a less volatile price compared to the market as a