5: Time Value of Money 75
14
U
;6@28#+&((" Stores annual interest rate.
13500
&
V
"
5O8/#%K.((&(("
Stores car’s value in PV.
(Money paid out by lessor.)
7500
X
GO8-K.((&((" Stores purchase option
value in FV. (Money
received by lessor.)
W
50:8$*,&#," Calculates monthly payment
received.
Example: Present Value of a Lease with Advance Payments and
Option to Buy. Your company is leasing a machine for 4 years.
Monthly payments are $2,400 with two payments in advance. You
have an option to buy the machine for $15,000 at the end of the
leasing period. What is the capitalized value of the lease? The interest
rate you pay to borrow funds is 18%, compounded monthly.
132 44 45464748
_
15,000
－
4,800
2
_
2,400
18
12; Be
in mode
47
The problem is done in four steps:
1. Calculate the present value of 47 monthly payments in Begin mode.
(Begin mode makes the first payment an advance payment.)
2. Add one additional payment to the calculated present value. This
adds a second advance payment to the beginning of the leasing
period, replacing what would have been the final (48th) payment.
3. Find the present value of the buy option.
4. Add the present values calculated in steps 2 and 3.
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