Your friend Xantha has just started a lawn mowing service and has purchased a group of new lawnmowers for $20 000

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Your friend Xantha has just started a lawn mowing service and has purchased a group of new lawnmowers for $20 000. Xantha expects the mowers to last 5 years and to have zero residual value at that point. Xantha's business plan estimates that the business can cut 5000 lawns over the 5 years, with estimations of 500 lawns for year 1, 1000 for year 2, 1200 for year 3, 1800 for year 4 and 500 for year 5 over the 5 years.

Required:

a) Calculate the accumulated depreciation balance at the end of the second year using each of the following depreciation bases: a. Straight-line b. Reducing balance (25% rate) c. Units-of-production

b) Based on your calculations, which depreciation basis would produce the highest profits at the end of the second year?

c) Your friend Xantha has never heard of the unit-of-production basis. Explain why companies use it and comment on whether it would make sense for your friend's business