Final answer:
A firm seeking to access financial capital may borrow money, issue bonds, or issue stock. Borrowing allows for full control over operations while issuing stock involves selling ownership to the public, thus answering to a board and shareholders. Capital return for investors can be through dividends or capital gains.
Step-by-step explanation:
When a firm considers how to access financial capital, it has multiple options. It may opt to borrow from a bank, issue bonds, or issue stock. Taking on debt via loans or bonds involves committing to scheduled interest payments, regardless of the firm's income level, but allows the company to maintain complete control without influence from shareholders. In contrast, issuing stock requires selling a portion of company ownership to the public, which introduces responsibilities to a board of directors and the shareholders.
Issuing stock is a significant decision because it implies that the firm is prepared to meet investor expectations for a return on investment. Returns can come in the form of dividends or capital gains. For example, a financial investor may purchase a share at one price and later sell it for a higher price, resulting in a capital gain. This capital gain represents the increased value of the stock over the period it was held by the investor.