Lease Calculations
A lease is a loan of valuable property (like real estate, automobiles, or equipment) for a specific amount of time, in exchange for regular payments. Some leases are written as purchase agreements, with an option to buy at the end of the lease (sometimes for as little as 1.00). The defined future value (FV) of the property at the end of a lease is sometimes called the residual value or buy out value.
All five TVM application keys can be used in lease calculations. There are two common lease calculations.
•Finding the lease payment necessary to achieve a specified yield.
•Finding the present value (capitalized value) of a lease.
The first payment on a lease usually occurs at the beginning of the first period. Thus, most lease calculations use Begin mode.
Example: Calculating a Lease Payment
A customer wishes to lease a 13,500 car for three years. The lease includes an option to buy the car for 7,500 at the end of the lease. The first monthly payment is due the day the customer drives the car off the lot. If you want to yield 10% annually, compounded monthly, what will the payments be? Calculate the payments from your (the dealer’s) point of view.
Figure 14 Cash flow diagram (Calculate the monthly lease payment)
Set to Begin mode. Press \¯if BEGIN annunciator is not displayed.
Time Value of Money Calculations 71