NPV for Operating Lease

FinancialAnalystKid

Well-known Member
Joined
Oct 14, 2004
Messages
779
I've really never worked with NPV nor with calculations dealing with an Operating Lease.

So I'm seeking out some advice and help.

Does anyone have something on Excel that might be useful to me?

Much appreciated!
 

Excel Facts

What is the last column in Excel?
Excel columns run from A to Z, AA to AZ, AAA to XFD. The last column is XFD.
"Does anyone have something on Excel that might be useful to me"

A somewhat more specific question would probably be a start :)
 
Upvote 0
LOL
Template maybe? Something someone may have used? I will be trying to put something together this weekend but would like to see what others have used. I saw some stuff online for like $129 but I'm not about to do that at the moment.

:)
 
Upvote 0
What sort of lease?

Company Lease, Car Lease etc?

If its a company lease make sure you use the cost of debt as the discount rate, not the WACC.

Cheers
Dave
 
Upvote 0
Here's some data.
Operating Leases Log.xls
ABCDEFGHI
1DescriptionLife(mo)Term(mo)MonthlyPmtTotalPmtsValueNPV
2Item160362,959.52106,542.72106,000.00
3Item260361,598.0057,528.0051,764.97
4Item360361,044.0037,584.0037,694.97
5
Sheet2


I need to include some sort of user inputs, possibly for different monthly payments or interest, etc. How do I figure this out?

I could use Excel's NPV formula but need to setup the table for monthly payements, etc.
 
Upvote 0
Any thoughts this fine Sunday Morning?

Can I have a user enter number of periods and still use Excel's NPV function?

NPV(I,Range)+period 0

What is the actual formula for the Range.

If a user enters 24 periods, how would I use that in the Range instead of say A2:A23 with A1 period 0?

It can't be Range = (24-1)*monthly payments can it? How do you enter the formula NPV = C0 + C1/1+r + C2/(1+r)^2+...+Ct/1+r)^t
 
Upvote 0
Here's what I got...

This is just a portion due to HTML makers limits.

Period 0 = -106,000
 
Upvote 0
Hello,

There's no significance to the underlying agreement that is causing cash flows to occur, from a quantitative standpoint, this is semantics that detracts from the issue at hand.

Get back to cash flows and use the NPV function as mentioned here:

http://www.mrexcel.com/board2/viewtopic.php?t=118586

Also, I might disagree with Dave a touch (with all due respect). Your cost of capital can imply opportunity cost. You could have that cash sitting in an equity fund making 13% per annum, but you can't, because you have elected to invest otherwise. Still, a real opportunity that is forgone...

Resources are scarce while investment opportunties are ample, they should all be considered against the same measure. I.e., I would argue to use the WACC. ;)

Also, you don't want an NPV, which implies inflows and outflows (Net), you simply want a present value of future outflows (PV).
 
Upvote 0
Nate, I think we are generally in agreement.... :)

A lease is a financing decision which is separate to the investing decision.

WACC is used to make a decision as to whether to invest or not, ie on unleveraged cashflows. But once the decision is made to invest then there is a secondary decision as to how to finance the investment. This is where the issue of whether or not to enter into an operating lease comes in

When evaluating a contract or lease, the cost of debt is the appropriate discount rate (taking into account risk, termination clauses etc) to determine whether entering into the contract is the correct decision

For example, a google of "NPV lease WACC cost of debt" turns up this quote from www.uic.edu/classes/fin/fin512/FMT8/no3_500.pd]Fin link[/url]

A lease payment is like the debt service on a secured bond issued by the lessee, and the discount rate should be approximately the same as the interest rate on such debt. (Recall: The discount rate should reflect the risk of the incremental cash flows.)
 
Upvote 0

Forum statistics

Threads
1,212,927
Messages
6,110,722
Members
448,294
Latest member
jmjmjmjmjmjm

We've detected that you are using an adblocker.

We have a great community of people providing Excel help here, but the hosting costs are enormous. You can help keep this site running by allowing ads on MrExcel.com.
Allow Ads at MrExcel

Which adblocker are you using?

Disable AdBlock

Follow these easy steps to disable AdBlock

1)Click on the icon in the browser’s toolbar.
2)Click on the icon in the browser’s toolbar.
2)Click on the "Pause on this site" option.
Go back

Disable AdBlock Plus

Follow these easy steps to disable AdBlock Plus

1)Click on the icon in the browser’s toolbar.
2)Click on the toggle to disable it for "mrexcel.com".
Go back

Disable uBlock Origin

Follow these easy steps to disable uBlock Origin

1)Click on the icon in the browser’s toolbar.
2)Click on the "Power" button.
3)Click on the "Refresh" button.
Go back

Disable uBlock

Follow these easy steps to disable uBlock

1)Click on the icon in the browser’s toolbar.
2)Click on the "Power" button.
3)Click on the "Refresh" button.
Go back
Back
Top