Identify which proposal olga should choose


Problem:

Olga Counterman's motel and restaurant rents its facilities from Z-B corporation.

Olga has been paying 10% of the motel  and restaurant's total sales to Z-B.

This past year the sales breakdown was as follows:     

Rooms $4,500,000
Food 800000
Telephone 50000
Miscellaneous 50000
Total $5,400,000

Z-B Corporation has made two proposals to Olga regarding a new 5-year lease contract:       

-Proposal A: Fixed rent of $60000 per month, due at the beginning of each month.

-Proposal B: Variable rent-due at the end of each year-as follows: 12% of room sales:3% of food sales: 2% of other sales       

Olga expects total sales to increase by 20% each year over the next 5 years, and the sales mix is expected to remain constant.

Her firm's discount rate is 12%.       
       
Question: Identify which proposal Olga should choose and explain why.

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Finance Basics: Identify which proposal olga should choose
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