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Alternative A Upfront cost to design, and build the space to suit Donnas specifications $935,000 Lease Rates $650,000 per year to be paid at the
Alternative A
- Upfront cost to design, and build the space to suit Donnas specifications $935,000
- Lease Rates $650,000 per year to be paid at the beginning of every year (annuity due) for 11 years
- Regus offers a onetime goodwill rebate of $300,000. It is offered at the end of 4th year.
- Building Maintenance and utility charges will be billed at the end of every year. The charge is expected to be $75,000 in the first year and is expected to increase at 3.5% per year to keep pace with inflation.
Alternative B
- Upfront cost to design, and build the space to suit Marks and Spencers specifications no charge
- Lease Rates $830,000 per year to be paid at the beginning of every year (annuity due) for 11 years
- Building Maintenance and utility charges will be billed at the end of every year. The charge is expected to be $75,000 in the first year and is expected to increase at 3.5% per year to keep pace with inflation.
- There is no rebate under this alternative.
Marks and Spencer corporation uses an interest rate of 9%. Also assume that the firm is not facing any capital rationing issues.
Which alternative should Donna choose? Why?
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