This paper will compare and contrast the Capital Asset Pricing model and the Discounted Cash Flows model. It will also discuss how an organization can evaluate its debt and equity mix and its dividend policy. In this paper, the characteristics and the cost of various debt and equity instruments are discussed. Expansion opportunities or a chance to up-grade equipment can create the need for extra funds. Obtaining a loan from a bank is not always the optimal choice. A company has many options for long-term financing, the ones covered in this paper are bonds, stocks and leases. Capital Asset Pricing Model and Discounted Cash Flows Model The valuation of common stocks, derive from the use of the Capital Asset Pricing Model (CAPM) or the Discounted Cash Flows Model (DCFM). Both methods provide a means for evaluating the riskiness of a potential investment (Block & Hirt, 2005). An investor needs to assess a particular stock and assign an expected rate of return based upon the issuing company, market, and economy. The CAPM model expresses the expected rate of return (Kc) equaling......

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