Examine the pros and cons of a sinking fund from the viewpoint of both a firm and its bondholders.

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From the standpoint of a firm, the primary benefit of a sinking fund is that it provides additional liquidity for large debt payments such as bonds. This helps to reduce financial risk for the company since any sudden increase in interest rates or other unfavorable market conditions would not necessarily cause immediate cash flow burdens. Furthermore, setting up a sinking fund can help bondholders by providing them with an additional degree of assurance that their investment will be paid back on-time and in full due to the predictable nature of these funds.

However, while there may be benefits associated with creating sinking fund from both a firm and its bondholders\’ perspective , there some drawbacks should also noted before committing such strategy .. Primarily points out potential negative impact price appreciation stocks could have long run given portion total assets earmarked specifically use mentioned purpose .

Additionally taking away money reinvestment projects essentially reduces growth opportunities means shareholders receive less returns leaving completely reliant upon steady dividend distributions remaining stable course time comes collect owed value . All this being said however end day main goal address situation directly ensuring creditors satisfied thus needing part.