Long-term financing involves the use of debt and or equity instruments with greater than one-year maturities, and often serve as vehicles to create additional capital. Equity instruments allow for additional freedom with regard to cash flows, they also provide for dilution of ownership. Equity instruments involve the use of stocks to raise funds and are typically calculated using either the Capital Asset Pricing Model (CAPM) or the Discounted Cash Flows Model (DCFM)... displayed 300 characters
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Equity instruments involve the use of stocks to raise funds and are typically calculated using either the Capital Asset Pricing Model (CAPM) or the Discounted Cash Flows Model (DCFM). According to Forbes Magazines’ Investopedia, the CAPM states, “that the expected return of a security or a portfolio equals the rate on a risk-free security plus the premium” (Investopedia, 2008)... displayed next 300 characters
As above, since both hurdle rate
and cash flows (and hence the riskiness of the firm) will be affected,
the financing mix can impact the valuation. Management must therefore
identify the "optimal mix" of financing—the capital structure that
results in maximum value...
(Scarborough & Zimmerer, 2003)
In Andy's case he has a far better chance of receiving a loan through a commercial bank and even though his loan must be repaid with interest he will have the opportunity to remain the sole proprietor of Custom Stitches...
Although the losses during the first and second quarters are not an ongoing issue it has me wondering about the cash management plan, and why appropriate measures were not taken to budget better for the acquisition of a new building...
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