Example: Computing Present Value of a Lease With Residual Value
The Peach Bright Company wants to purchase a machine currently leased from your company. You offer to sell it for the present value of the lease discounted at an annual interest rate of 22% compounded monthly. The machine has a residual value of $6500 with 46 monthly payments of $1200 remaining on the lease. If the payments are due at the beginning of each month, how much should you charge for the machine?
The total value of the machine is the present value of the residual value plus the present value of the lease payments.
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To |
Press |
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Display |
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Set all variables to defaults. |
& } ! |
RST |
0.00 |
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Set beginning-of-period payments. |
& ] & V |
BGN |
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Return to standard-calculator mode. |
& U |
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0.00 |
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Enter number of payments. |
46 , |
N= |
46.001 |
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Calculate and enter periodic interest rate. |
22 6 12 N - |
I/Y= |
1.831 |
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Enter residual value of asset. |
6500 S 0 |
FV= |
-6,500.001 |
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Compute residual present value. |
C . |
PV= |
2,818.227 |
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Enter lease payment amount. |
1200 S / |
PMT= |
-1,200.001 |
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Compute present value of lease payments. |
C . |
PV= |
40,573.187 |
Answer: Peach Bright should pay your company $40,573.18 for the machine.