Lump Sum Versus Payments for Capital Structure Are Affected by the Type of Fund Performance

One of the most common arguments made in the financial management world is that Lump Sum vs. Payments are an economic comparison that has no meaning. Yet, most financial managers would agree that financial management involves both management and execution of cash flows. This means that each has a time value and a price. They are designed to provide financial managers with the information needed to make successful, financially sustainable decisions while considering all relevant factors.

Lump Sum versus Payments

The price of a certain option can be determined by the time it takes to pay off the investment. In order to determine the price of a lump sum versus payments for a worker’s compensation claim, consider only the difference in the payment’s discounted value at the beginning of the period versus the beginning of the end of that period. If there are no longer any bonuses or raises, there will be no increase in workers’ comp premiums. Conversely, if there are new investments, these will have a positive effect on the workers’ comp rates. There is also the stipulated finding that when an investment does not pay out the entire agreed upon amount, then the policyholder loses part of his/her investment. (Stipulated Finding)

Lump Sum vs. Payments for capital structure are also affected by the nature of the workers’ comp claim. A future value adjustment considers both the workers’ past and future earnings and the present value of future payouts. If there are no investments in the group project, the potential for earnings from future projects is not taken into consideration. The potential for losses from unplanned stoppages or excess wear and tear is not taken into consideration either.

Lump Sum vs. Payments for health insurance costs are not the same as they would be under the normal fluctuating rates scenario. Under normal conditions, a benefit package might include premiums, a benefit, and a reimbursement benefit. With a lump sum payment, there are no additional benefits to be paid for. If the benefits were to be paid out in monthly installments, the costs associated with this would be multiplied by the number of months the plan is used over the course of the year. The lump sum payment would then have to be made for each month that the payments were due.

{T Lump Sum versus Payments for capital structure are affected by the type of fund performance. A fixed rate annuity is based on a predetermined rate and will never change; however, an indexed annuity has a starting value and can either go up or down depending on the investments chosen.

{T Lump Sum versus Payments for capital structure are affected by the type of risk selected. A risky venture is one in which the sum invested is at a level which is too high or too low to cover risks of probable losses; while a stable enterprise is one in which the sum invested is at a level which is somewhat in between the two.

{T Lump Sum versus Payments for capital structure are affected by the type of compensation plan selected. Usually the more lucrative plan is the lifetime compensation plan. A benefit is given to employees at the end of their employment; however, this is not always the case. Some companies pay employees only a partial benefit at the end of their employment and others give no benefit.

{T Lump Sum versus Payments for capital structure are affected by the type of fund performance. A non-risky venture is one in which the sum invested is less than the value of the investment at the date of termination; whereas, a risky venture is one in which the sum invested is greater than the value of the investment at the date of termination.