In: Finance
Discuss the pros and cons of a sinking fund from the viewpoint of both a firm and its bondholders. Which group do you think would more in favor of such a provision, and why?
Sinking fund is a fund that is kept aside by the corporation to retire the portion of bond issue each year. Sinking fund helps the company in orderly retirement of bond issue.
Pros and cons for a firm
Pros and cons for bond holders
Firms would be more in favour of such provision as they will be able to repay their debt in timely manner with no payment of interest after they retire the bond issues.