Min Lee is considering signing a 10-year lease for her Asia Garden Inn. Her two best alternatives are as follows:

Alternative #1 Alternative #2 Monthly rent $2,000 7% of sales Energy costs Paid by lessee Paid by lessor Repairs to building Paid by lessee Paid by lessor Building insurance Paid by lessee Paid by lessor The average monthly revenues over the 10-year period are expected to start at $40,000 and increase by $1,000 per month each year. The estimated monthly costs for energy, repairs, and building insurance total $1,000 and are expected to increase by $50 per month each year.
Required:
1. Determine the annual costs of each alternative over the 10-year period. 2. Based on cost minimization, which lease do you recommend? Why?