Get Lease Vs . Buy Analysis - NAI Utah Southern Region

A net present value calculation is a good way to identify the direct cost comparison of leasing versus buying a car, for example. To obtain an accurate net present value calculation, buyers must determine an estimated timeframe for the comparison.

The formula is quite simple – you just multiply the annual lease payment by the present value factor, and that results in the net present value of future minimum lease payments, which is recorded on the balance sheet as the lease liability (and ROU asset).

The net present value (NPV) is a calculation of the total rent payable over the lifetime of a lease with a discount factor of 3.5% (the 'temporal discount rate') applied to take into account the present day value of the right to receive a sum in the future.

Net present value, or NPV , is commonly used in capital budgeting decisions and other types of financial analyses as a way to determine the benefit of investing in a particular capital asset. In this usage, “net” means the calculation is using both inflows and outflows of cash.

Present value (also referred to as PV) of lease payments, is a financial calculation that measures the worth of a future sum of money. A future sum of money being a stream of payments given a specified return rate over a given time, ing to My Accounting Course.