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.
The time valuation of money is the idea that money available now could be worth more than the same amount in the future, because that current money has the possibility of earning money in the future. Think if the expression, “It takes money to make money!” If you are guaranteed to have $100.00 now or $100.00 in 3 years, you would probably take the money now. However, the $100.00 you could have now can be utilized to make even more money in the future through investing.
This concept is very important in the business world as corporations are always looking to increase investing opportunities that will prove profitable. Time valuation enables corporate managers to determine two major aspects of investments; How much to invest and the rate of return on that investment. A company needs to know how much they need for an initial investment and how much that investment will yield over a given period of time. This is also where compounded interest plays a major role, the more the interest is compounded the greater the yield.
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.
Sinking funds are a method of repaying funds that were borrowed via a bond. A bond in simple terms is an IOU to individual persons or corporations that provided a corporation money, usually for the purpose of investment. That bond has a Face value based on what the issuer sells it for, a Market value based on what it sold for and a Fair value price; meaning what is it is worth comparable to other interest rates (banks etc.) All of these rates are