The owner of a local restaurant needs to decide between two lease options as presented below for the next 3 years.

Option 1: A fixed fee of $400,000 plus 15% of the total sales.

Option 2: A fixed fee of $600,000 plus 10% of the total sales.

The owner of the restaurant projects the sales will be $950,000 in the next year; and it will grow by 12% per year for the following 4 years.

Which one of the following would you recommend, and why?

Group of answer choices

More information is needed to solve for the answer.

Either option does not make difference because the amount of revenues at $1,000,000 is the Indifference Point. Thus, it doesnt matter.

Select the Option 1 for the next 3 years; and renew the lease contract in the fourth year with the Option 2.

Select the Option 2 for the first 3 years; and switch it to the Option 2 at the second lease contract.