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Long-Term Financing
MBA 503 - Introduction to Finance and Accounting
Long-Term Financing
The financial manager in the interest of the company attempts to obtain funds or capital from the various investors in the market. There are many financial instruments available with varying required rates of return and other peculiar requirements. The financial manager and company must evaluate, compare, contrast, and finally combine them into a mutually beneficial package of financing for the company and investment in the market. For these reasons, this paper reviews and discusses financing models, costs, and alternatives in capital acquisitions.
First, the capital asset-pricing model, CAPM and the discounted cash flow model, DCFM are compared and contrasted. Debt-equity and dividend policy is discussed in terms of relationships between investors and choices of policy. Of course, the characteristics of instruments of debt and equity must follow in the same light of relationships. Finally, the long-term financing as an alternative is appropriately discussed highlighting relationships between investors and policy.
Comparison and Contrast of the Capital Asset Pricing Model
and the Discounted Cash Flows Model
The capital asset pricing model is a popular asset-pricing model. As stated by Davis (Davis, 2006), “It was the first attempt to analyze the equilibrium implications of investing under conditions of uncertainty” ( 1). Within the world of business, CAPM can help determine the required return on common stock. The following demonstrates CAPM as a formula calculating the required return for common stock as stated by Block & Hirt (2005), “Kj = Rf + B (K ...