You are seeking office space for your small business, and you are considering two different 3 year leases. Lease A is a net lease with steps. The rent will start at $5/sqft and increase by $2/per square foot each year. Lease B is a net lease with 1 free year. The rent will start at $8/sqft and increase by $3/sqft each year, except for year 3, in which you will receive free rent. If you are otherwise indifferent between the two leases and have a discount rate of 8%, which lease will be more cost-effective over the 3 year term? Why?

a. Lease A, lower average rent

b. Lease A, lower effective rent

c. Lease B, lower average rent

d. Lease B, lower effective rent

e. Cannot be determined from information given

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