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Time-Value-of-Money and Amortization Worksheets 33
Note: Although variable cash flow payments are not equal (unlike
annuity payments), you can solve for the present value by treating the
cash flows as a series of compound interest payments.
The present value of variable cash flows is the value of cash flows
occurring at the end of each payment period discounted back to the
beginning of the first cash flow period (time zero).
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.
To Press Display
Set all variables to defaults. &}!
RST 0.00
Set beginning-of-period
payments.
&] &V
BGN
Return to standard-calculator
mode.
&U 0.00
Enter number of payments.
46 ,
N=
46.00
1
Calculate and enter periodic
interest rate.
22 6 12 N-
I/Y=
1.83
1
Enter residual value of asset. 6500 S0
FV=
-6,500.00
1
Compute residual present value.
C.
PV=
2,818.22
7
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