What are the Advantages of a Sinking Fund?
1. Brings in investors: Investors are very well aware that companies or organizations with a large amount of debt are potentially risky. However, once they know that there is an established sinking fund, they will see a certain level of protection for them so that in the case of a default or bankruptcy, they will still be able to get their investment back.
2. The possibility of lower interest rates: A company with poor credit ratings will find it difficult to attract investors unless they offer higher interest rates. A sinking fund offers alternative protection for investors so that companies can offer lower interest rates.
3. Stable finances: A company’s economic situation is not always definite, and certain financial issues can shake its stable ground. However, with a sinking fund, the ability of a company to repay its debts and buy back bonds will not be compromised.
How to Calculate Annual Sinking Fund using Sinking Fund Method?
Annual Sinking Fund using Sinking Fund Method calculator uses Annual Sinking Fund = Rate of Interest/((1+Rate of Interest)^Life of Asset in Years-1) to calculate the Annual Sinking Fund, The Annual Sinking Fund using Sinking Fund Method formula is defined as an account containing money set aside to pay off a debt or bond. A company that issues debt will need to pay that debt off in the future, and the sinking fund helps to soften the hardship of a large outlay of revenue. Annual Sinking Fund is denoted by Sa symbol.
How to calculate Annual Sinking Fund using Sinking Fund Method using this online calculator? To use this online calculator for Annual Sinking Fund using Sinking Fund Method, enter Rate of Interest (Ir) & Life of Asset in Years (x) and hit the calculate button. Here is how the Annual Sinking Fund using Sinking Fund Method calculation can be explained with given input values -> 0.083333 = 10/((1+10)^2-1).