A retail lease for $10,000$ square feet of rentable space is being negotiated for a five$-$year term.

Option A calls for a base rent of $$25$ per square foot for the coming year with step$-$ups of $$1$ per year each year thereafter. CAM charges

are expected to be $$3$ for the coming year and are forcasted to increase by $6$ percent at the end of each year thereafter.

Option B calls for a lower base rent of $$23$ per square foot with the same step$-$ups and CAM charges, but the tenant must pay overage

rents based on a percentage lease clause. The clause specifies that the tenant must pay $8$ percent on gross sales over a breakpoint level of

$$900,000$ per year. The owner believes that the tenant's gross sales will be $$850,000$ during the first year but should increase at a rate of

$10$ percent per year each year thereafter.

a$.$ If the property owner believes that a $12$ percent rate of return should be earned annually on this real estate investment, which option

is best for the owner of the retail center?

b$.$ What if sales are expected to increase by $20$ percent per year?