# You’re a contractor who needs

You’re a contractor who needs to lease space for a field officeduring the five years of a construction project. The owner of thebuilding where you want to rent space offers you three leaseoptions. Each option assumes payment at the beginning of each year,and i=4% per year. which option would you chose?

A) First year annual rent of \$12,000, with an increase of \$2,500per year for each of the next four years

B) First year annual rent of \$12,000, with an increase of 18%per year for each of the next four years

C) Constant rent of \$16,900 per year for five years.

*please solve arithmetically and not with excel*

Answer:

A) The present value of the first lease option = \$12,0001.041+  \$ 14,5001.042+ \$ 17,0001.043+ \$ 19,5001.044

The present value of the first lease option=  \$56,726.15

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B) The present value of the second lease option = \$12,0001.041+  \$ 14,1601.042+ \$ 16,708.801.043+ \$ 19,716.381.044

The present value of the second lease option = \$ 56,337.89

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C) The present value of third lease option = \$ 16,9001.041+  \$ 16,9001.042+ \$ 16,9001.043+ \$ 16,9001.044  +\$ 16,9001.045

The present value of third lease option = \$ 75,235.80

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The owner should choose the second lease option because it isthe cheapest lease option compared to the first and third leaseoption.

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