January 6th, 2009
How do I determine the lease cost for a customer? I have to purchase
hardware and software for this lease. I also have to buy extra
hardware incase something happens (I am responsible for the upkeep)
The hardware lasts aprox 4-5 years and the software has a $200.00 a
year upkeep on it. I would probably spend around 6 hours a month on
this customer and I need to make around 100.00 per hour. Therefore
$600.00 would need to be tacked on as well. The agreeement would be a
60 month agreement.The remaining value for most computer equipment is zero after 60
months = removing your equipment will cost more than you can wholesale
it for. Your customer is likely to be negociating up grades before the
end of 60 months. If your charges are not competitive and/or your
equipment performs poorly you will get few new customers resulting
from present customers and many of your customers will go with someone
else at the end of the 60 months. NeilGo thru the following step-by-step method below to get a better idea
about how you can calculate the Lease cost for a customer.
If your business requires a lot of such calculations to be computed,
you can download , try and then buy the best calculator tool that fits
your need. Check out this URL for a lost of lease calculator tools.
http://www.download.com/3120-20_4-0.html?qt=lease+calculator&tg=dl-2001&search.x=21&search.y=4
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Equipment Lease
With the Equipment Lease calculation you can calculate the periodic
payments for leases and compare how different residual values and
advance payments affect the periodic payments.
Leasing is based on the concept that you pay for the amount by which
the value of the object that's leased depreciates during the time
you're using it. Depreciation is the difference between the original
value and the residual value at the end of the contract.
A lease is different than a loan in that payments are made at the
beginning of the month in which they're due, while loan payments are
paid at the end of the due month. This means you'll make your first
lease payment at the time you sign the contract.
Advance payments affect lease cost: the higher the value, the less
interest you'll pay on the outstanding debt.
Note: The Equipment Lease calculation uses the "annuity" type formulas
to calculate payments and not the "money factor" type formula used by
car dealers and car lease companies.
For a calculator that calculates vehicle leases using the money factor
method, please have a look at Car Lease.
For an advanced equipment lease calculator with a wide range of
compounding and payment frequencies and which lets you use deferred,
advance, step up, seasonal, step down and residual payments, please
have a look at FinLease.
Tips
To see the amortization schedule, select the Show Details command in
the Calculation menu. In the schedule, the residual value is adjusted
to account for rounding.
To toggle between date and year/period view, click the header of the
first details column.
To change the start date, select the Start Date command in the Edit
menu to open the Date Options dialog.
Input
? nominal annual rate (compounding frequency and payment frequency are
assumed to be monthly)
? equipment cost
? points
? residual value
? number of monthly payments
? number of advance payments:
0 = first payment is made at the end of the first month, identical
to a balloon payment loan
1 = ordinary lease
2...n = more than one lease payment is made at lease-start
Results
? periodic payment rounded to two digits after the decimal point
? amount paid off over time (i.e. total depreciation)
? total amount paid
? total interest
Examples
? A machine costing $10,000 is leased for a period of 36 months.
Interest is at 6 % compounded monthly.
At lease-end the residual value is $2,500. No points are charged.
What will monthly payments be for an ordinary lease?
Input Nominal annual rate: 6 %
Equipment cost: 10,000
Points: 0
Residual value: 2,500
Number of payments: 36
Number of advance payments: 1
Result Periodic payment: 239.48
Answer: $239.48.
? What would the monthly payments be for the above example if there
were three advance payments?
Input Nominal annual rate: 6 %
Equipment cost: 10,000
Points: 0
Residual value: 2,500
Number of payments: 36
Number of advance payments: 3
Result Periodic payment: 237.20
Answer: $237.20 or $239.48 - $237.20 = $2.28 less.
? What would the monthly payments if there were three advance payments
and the leasing company charges 5 points?
Input Nominal annual rate: 6 %
Equipment cost: 10,000
Points: 5
Residual value: 2,500
Number of payments: 36
Number of advance payments: 3
Result Periodic payment: 252.19
Answer: $252.19.
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Capitalized Cost
Assets may have different original and/or maintenance costs, different
useful lifetimes, different salvage values or produce revenue at
different rates. All these differences make it very hard to choose
between alternatives.
Typical situations are:
you're considering whether to put aluminium siding on your house or to
continue to have it painted every three years...
you need to choose between two machines, but find it very hard to
choose between them because machine ABC lasts 8 years and produces
1,000 units per year, while the cheaper machine XYZ lasts only 5
years, produces less units and has a higher maintenance cost...
You could ask yourself the following question:
How much money would I need now, to be able to purchase the asset, pay
for annual maintenance, and replace it at the end of its useful
lifetime by another one, forever?
An asset's capitalized cost is the original cost of the asset, plus
the present value of an infinite number of replacements, plus the
present value of maintenance costs in perpetuity.
The Capitalized Cost calculation enables you to choose rationally
between alternatives. All you need to do is compare their capitalized
costs: they represent the present value of all costs involved with
purchasing, maintaining and replacing the assets.
Input
? nominal annual rate (compounding frequency is assumed to be annually)
? cost
? useful life in years
? salvage value
? annual maintenance cost
? units produced per year
Results
? capitalized cost
? capitalized cost per unit
Examples
? Bart has to decide whether to install aluminium or wooden windows.
Aluminium windows cost $5.000, have no maintenance cost and last 50 years.
Wooden windows cost $2,500, last 25 years and have an annual
maintenance cost of $150.
What should he do when his savings earn interest at 6 % annually?
Step 1: Calculate the capitalized cost for aluminium windows.
Input Nominal annual rate: 6 %
Cost: 5,000
Useful lifetime: 50
Salvage value: 0
Annual maintenance cost: 0
Units produced per year: 0
Result Capitalized cost: 5,287.02
Step 2: Calculate the capitalized cost for wooden windows.
Input Nominal annual rate: 6 %
Cost: 2,500
Useful lifetime: 25
Salvage value: 0
Annual maintenance cost: 150
Units produced per year: 0
Result Capitalized cost: 5,759.45
Answer: Bart should install aluminium windows.
? Machine A costs $30,000, lasts 15 years, and will have a salvage
value of $4,500. Its annual maintenance cost is $3.500.
Machine B costs $40,000, will last 20 years, and will have a salvage
value of $2,000 after 20 years. The annual maintenance cost for this
machine is $3.000.
Both machines produce 10,000 units per year.
If money is worth 10 % annually, which machine should be purchased?
Step 1: Calculate the capitalized cost for machine A.
Input Nominal annual rate: 10 %
Cost: 30,000
Useful lifetime: 15
Salvage value: 4,500
Annual maintenance cost: 3,500
Units produced per year: 10.000
Result Capitalized cost: 73,025.81
Capitalized cost per unit: 7.30
Step 2: Calculate the capitalized cost for machine B.
Input Nominal annual rate: 10 %
Cost: 40,000
Useful lifetime: 20
Salvage value: 2,000
Annual maintenance cost: 3,000
Units produced per year: 10,000
Result Capitalized cost: 76,634.66
Capitalized cost per unit: 7.66
Answer: Machine A should be preferred because it has a lower capitalized cost.
? What if, in the above example, machine B produces 11.000 units per year?
Input Nominal annual rate: 10 %
Cost: 40,000
Useful lifetime: 20
Salvage value: 2,000
Annual maintenance cost: 3,000
Units produced per year: 11,000
Result Capitalized cost: 76,634.66
Capitalized cost per unit: 6.97
Answer: Machine B should be preferred because it has a lower
capitalized cost per unit.
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