The owner of the local Kwik Copy franchise is considering investing in a new colour copier. The following information is related to the acquisition and operation of the copier:

Initial investment$50,000

Salvage value $5,000

Useful life6 years

Annual revenue attributable to the investment $21,000

Annual operating expenses, excluding depreciation, associated with the investment $7,000

The copier will be in use for:

-2880 hours in year 1

-2550 hours in each of years 2 and 4

-2190 hours in year 5

-1460 hours in each of years 3 and 6.

When you have finished your worksheet, answer the following questions

1. Which depreciation method produces the highest profit in year 1? In year 6? If it's not the same method for each year why not? (5 marks)

2. Which method would the business prefer for tax purposes? Why? (5 marks)

3. Which method would the business prefer for reporting to bankers and creditors? Why? What if the business wanted to change methods after two years? (5 marks)

Section 2 Straight-line depreciation

Year 0 1 2 3 4 5 6

Revenue

Expenses

Depreciation

Profit

Section 3: will calculate profit from the investment using reducing - balance depreciation (at 1.5 times the straight line rate). This section will have a format like that of section 2. Section 4: will calculate profit from the investment using units - of - production depreciation. (There is no Excel formula for this method.) This section will have a format like that of section 2, with the addition of a row for the annual units of production.