Long Term Fiancing

Introduction Long-term financing strategies ease ensure that the money invested at present go out earn more than or equal to the pith invested. The capital asset set model (CAPM) and discounted cash scat method (DCF) will be compared. The debt and equity mix help a company optimize its wealth. The debt and equity mix will be examined along with characteristics of the financial merchandise, and debt and equity instruments. Finally, long-term pay alternatives such as posts, bonds, and leases are discussed. Capital asset pricing model vs. discounted cash pay heed method Two methods can be used to calculate the required rejoin on gross extend. The first method is capital asset pricing model, or CAPM. In CAPM, the required return on common stock is reached by adding the risk-free rate of return to historical rigour of the return. The historical validity of the return is calculated by subtracting the return in the market from the risk-free rate of return. The discounted cash flow method, or DCF, uses future free cash flow projections and discounts them (most often using the weighted average cost of capital) to arrive at a present value, which is used to evaluate the potential for investment, (Investopedia, 2007). A good opportunity exists when the potential for investment is greater than the on-going cost.

The DCF method is used to account for the time value of money, this mean the value of a dollar today has a lesser value in the future, all else being equal. The following map shows how the two methods are calculated and what drawbacks may exist. Description formDrawbacks Capital Asset Pricing Model (CAPM)CAPM relates the risk-return trade-offs of individual assets to market returns, (Block & Hirt, 2005).Kj =  + Km + e ?Kj = Return on individual common stock of a company ? = Alpha, the intercept on the y-axis ? = Beta, the coefficient ?Km = Return on the stock market (an index of stock returns is used,... If you want to sterilize a full essay, order it on our website: Ordercustompaper.com

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