Discussion Post: 4 PARTS
PART 1: POST MUST BE A MIN OF 300 WORDS
Examine the concept of time value of money in relation to corporate managers. Propose two (2) methods in which time value of money can help corporate managers in general.
Examine the pros and cons of a sinking fund from the viewpoint of both a firm and its bondholders. Determine the fundamental manner in which this knowledge could be helpful to a financial manager. Provide a rationale for your response.
PART 2: COMMENT ON THE BELOW AND RESPOND BY GIVING YOUR OPINION ON THE POST. RESPONSE MUST BE A MIN OF 150 WORDS!
The time value of money is the idea that money available at the present time is worth more than same amount in the future due to its potential earning capacity. Time value of money also talks about money that are received at different point of time has different value. In other word, time value of money is the idea that if you have a particular amount of money today is more worth than the same amount in the future. If money that we hold today can be invested and earn interest on it will be worth more. Two methods in which time value of money can help corporate managers in general are company should invest in buildings. This will help the company earn more money in the future because the time value of money would be used to calculate the present of cash flows. I would say a sinking fund is a means of repaying funds borrowed through a bond issued through periodic payments to trustee who retires part of the issue by purchasing the bonds in the open market. It also measures the way to build up a certain degree of capital so that debt can be easier to pay.
PART 3: COMMENT ON THE BELOW AND RESPOND BY GIVING YOUR OPINION ON THE POST. RESPONSE MUST BE A MIN OF 150 WORDS!
Corporate Managers goals are to increase the company intrinsic value, understand the financial statements, and “understand the time value of money and its impact on stock prices” (Brigham & Ehrhardt, 2017). It is imperative to have the ability to estimate value of an investment for the future. When planning for the future of your company or personal life, you need to know what your goal is, how to arrive at it, and what it will take to get there. Knowing the future value of money is the key to success. There are four ways to get you there according to Brigham & Ehrhardt, 2017, but for beginning learners it is very important to use a Time Line. As a Corporate Manger you may need to calculate the present value of an investment or you may want to retire with $2 million in your 401 (k), therefore you would need to know how much is needed to reach the goal.
PART 4: COMMENT ON THE BELOW AND RESPOND BY GIVING YOUR OPINION ON THE POST. RESPONSE MUST BE A MIN OF 150 WORDS!
The basic idea behind a sinking fund is that companies are trying to address their debt in advance. Instead of waiting for all of the bonds that have been issued to mature, they are going to set aside a certain amount of money into the sinking fund each year. They will use some of the money in the sinking fund to purchase a few of the bonds early. As an investor, it is good to know that the company is going to be able to address its debt. You do not want to be a bond holder in a company that cannot afford to pay back the bonds that it issued. If this is the case, you may not be able to get your initial investment in the company back. Investors like to see sinking funds in the companies that they are planning on investing in. This provides some peace of mind to the investors because they know that the company is not going to go under anytime soon. When a company lets its debt get out of control, it starts to become a much less attractive investment. No one wants to put money into a company that looks like it stands the risk of becoming insolvent in the near future.