Part $2(40$ marks$)$

Lilly Martin is a third$-$year university student who has operated her own lawn care business for the past

four years. She has one employee, her younger brother, whom she pays $$15$ per hour. He has worked an

average of $600$ hoursper season since Lilly started her business. She is planning on giving him a raiseof $$2$

per hour for the fifth season of her business, which will amount to additional wages of about $$1,200.$

When Lilly first started operations, she borrowed $$1,000$ from her parents to purchase two lawn mowers

for $$500$ each. Because Lilly is an accounting major, she decided to prepare financial statements at the

end of each lawn care season so she would know how muchshe earned. For accounting purposes, she

assumed each lawn mower would have a fiveryear life with $$25$ salvage value. As of the end of her

fourth year ofoperations, each lawn mower had a net book value of $$120.$ Lilly estimates shecould sell

each mower now for $$40$ each.

Lilly is beginning to plan for the fifth year of operations and recently learned of a company that leases lawn

mowers to small businesses. The company is currently offering one$-$year leases on a mower similar to the

type Lilly currently uses for

$$200.$ In addition, the company charges an up$-$front administration fee of $$25$ toprocess the lease

agreement. As part of the lease agreement, the company will perform two oil changes and sharpen the

mower blades twice for each of her two mowers. However, Lilly estimates that she will have to forgo about

$$75$ in total lawn care revenue for the season related to having to take the two leased lawnmowers in to

the company during regular business hours to have the oil changed and blades sharpened. Her father has

always changed the oil and sharpened the blades on the existing mowers on Sundays when Lilly wasn't

using them. Given other time commitments of both Lilly and her brother, she cannot foresee being able to

work extra hours to make up the time lost for the oil changes and blade sharpening.

Lilly would be responsible to pay for any repairs arising from use of the mowers such as broken wheels, damaged blades, broken

cables, etc. Given the high amount of usage, repairs costs have averaged about $$150$ per season for each of her existing two

mowers and she estimates they will be similar in the fifth year even if she leases the two mowers. After finishing her fourth season

of operations Lilly paid about $$100$ in total for each mower to replace the wheels and install new starter cords.

The new mowers are more fuel efficient and Lilly's research shows they will use about $7\mathrm{.}5\%$ less gas than her current mowers.

Lilly's existing mowers each use about $4$ litres of gas per hour, which amounts to about $2,400$ litres per season at an average of

$$1\mathrm{.}00$ per litre.

Lilly has never increased her billing rate of $$30$ per hour since she started her company but plans to raise her rates to $$32$ per

hour, which will generate additional revenue of about $$2,400$ in the fifth year.

Required:

Should Lilly sell her old mowers and lease two mowers for her fifth season of operations? Show all calculations $(25$

marks$)$

For any amounts above not used in your analysis, briefly explain why it was excluded. $(15$ marks$)$