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TV of Money, Dollar, Bond Ratings, Debt vs Equity, Capital

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Is a dollar today worth more than a dollar tomorrow? Why or why not? What is the relationship between present and future value?

What impact does a company's bond rating have on its cost of capital? What is the relationship between interest rates and bond prices?

Should a company have more debt or more equity in its capital structure? Explain your answer. What are some limitations of utilizing debt vs. equity in the capital structure?

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The question answers several questions related to the time value of money, bond rating's impact on a firm's cost of capital, and debt versus equity in capital structure.

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A dollar today is worth more than a dollar tomorrow because of inflation. Today, a dollar might buy you a candy bar, for example. Three years from now, the same candy bar will cost more (probably $1.10) because of inflation. So, the same dollar will no longer buy the same candy bar making it, effectively, worth less than it is today. Essentially, the present value is always greater than the future value in terms of buying power (under inflationary pressure).

A company's bond rating directly impacts its cost of capital and is one of the most important considerations to financial ...

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