1. You are seeking office space for your small business, and you are considering two different 5 year leases. Lease A is a net lease with steps. The rent will start at $7/sqft and increase by $3/per square foot each year. Lease B is a net lease with 1 free year. The rent will start at $7/sqft and increase by $2/sqft each year, except for year 2, in which you will receive free rent. If you are otherwise indifferent between the two leases and the current market risk free rate is 2.5%, which lease will be more cost-effective over the 5 year term?
The leases will have equal cost over the 5 year period
Lease A
Cannot be determined from information given.
Lease B
2. You are considering a 7 year net lease with 1 free year. The rent will start at $13/sqft and increase by $1/sqft each year, except for year 5, in which you will receive free rent. Your discount rate is 6%. If instead your discount rate increases to 7%, what will happen to your effective rent, all else equal?
Stay the same
Cannot be determined from information given.
Decrease
Increase