The management of LAS, Inc., took the following actions, which went into effect on May 2, 2011. Each action involved an application of present value.

a. Asked for a fund to be established by a single payment to accumulate to $37,500 in four years.

b. Approved the purchase of a parcel of land for future plant expansion. Payments are to start May 2, 2012, at $25,000 per year for five years.

REQUIRED

1. Assuming an annual interest rate of 8 percent and using Tables 1 and 2 in Appendix B, answer the following questions:

a. In action a, how much will need to be deposited initially to accumulate the desired amount?

b. In action b, what is the purchase price (present value) of the land?

2. What is the fundamental reason present value analysis is a useful tool in making business decisions?