Long Term Financing Paper

1885 WordsNov 2, 20098 Pages
Long-Term Financing Learning Team A Donald Blythe, Kim Brown, Athena Cartaya, Nicia Diaz University of Phoenix Introduction to Finance and Accounting MBA 503 October 6, 2008 Introduction Team A has been asked to assist in providing long-term financial advice to Company A, as they are considering expansion. Long-term financing provide capital deficit businesses funds for the period over 1 year. It contrasts to short term financing because short term financing provides funds for the period of 1 year or less. Businesses normally turn to lenders not only to expand their companies or to purchase equipment, but also to finance operating capital to even out cash flow (unixl, 2008). Long-term financing ensures that the Funds Company A invests today, will earn a profit. Team A will compare and contrast the capital asset pricing model and the discounted cash flows model, evaluate the organization’s debt/equity mix and dividend policy, describe the characteristics and the cost of various debt and equity instruments, and evaluate long-term financing alternatives (e.g., stocks, bonds, leases). Compare and contrast the capital assets pricing model and the discounted cash flows model The capital assets pricing model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that assets non-diversifiable risk. The model takes into account the asset’s sensitivity to non-diversifiable risk, also known as systemic risk or market risk, often represented by the quantity beta (B) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset (Wikipedia, 2008). In other words, the (CAPM) is used by organizations to determine their required return on an investment. The required return for

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