Table 6-12 Calculating the monthly lease payment

KeysDisplay Description

JG\Í

12.00

Sets payments per year.

 

 

 

 

J:Ò

10.00

Stores desired annual yield.

 

 

 

JDV::yÏ -13,500.00

Stores lease price.

jV::É

7,500.00

Stores residual (buy out value).

 

 

 

 

DSÙ

36.00

Stores length of lease, in months.

 

 

 

 

Ì

253.99

Calculates the monthly lease

 

payment.

 

 

 

Notice that even if the customer chooses not to buy the car, the lessor still includes a cash flow coming in at the end of the lease equal to the residual value of the car. Whether the customer buys the car or it is sold on the open market, the lessor expects to recover 7,500.

Example: Lease With Advance Payments

Your company, Quick-Kit Pole Barns, plans to lease a forklift for the warehouse. The lease is written for a term of four years with monthly payments of 2,400. Payments are due at the beginning of the month with the first and last payments due at the onset of the lease. You have an option to buy the forklift for 15,000 at the end of the leasing period.

If the annual interest rate is 9%, what is the capitalized value of the lease?

Figure 15 Cash flow diagram (Calculate PV of the lease)

72 Time Value of Money Calculations