The management of Pzazz, Inc., took the following actions that went into effect on January 2, 20x7. Each action involved an application of the time value of money.

a. Established in one payment of $50,000 a contingency fund for the possible settlement of a lawsuit. The suit is expected to be settled in two years.

b. Asked for another fund to be established by a single payment to accumulate to $150,000 in four years.

c. Approved the purchase of a parcel of land for future plant expansion. Payments are to start January 2, 20x8, at $100,000 per year for five years.

d. Determined that a new building to be built on the property in c would cost

$800,000 and authorized five annual payments to be paid starting January 2, 20x8, into a fund for its construction.

Required 1. Assuming an annual interest rate of 8 percent and using Tables 1 to 4 in this chapter, answer the following questions:

a. In action

a, how much will the fund total in two years?

b. In action

b, how much will need to be deposited initially to accumulate the desired amount?

c. In action

c, what is the purchase price (present value) of the land?

d. In action

d, how much would the equal annual payments need to be to accumulate enough money to construct the building?

2. User Insight: What is the fundamental reason time value of money analysis is a useful tool in making business decisions?

Alternate Problems Notes Payable and Wages Payable