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 4^th 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?