Hello. This is Eddie and we are going to work with Lisa's the leases we're going to be working with today our leases that require at least a few payments in advance before the lease begins the formula provided to us is from a website called T V M calcs com that is T V M C al cs.com here is the formula to find the payment for leases that require advanced lease payments on the numerator you got the present value of the lease minus the residual value or the future value over 1 plus i to the power of n the denominator is like this 1 minus the quantity of 1 plus i to the power of negative the quantity n my essay all this over i plus a I is your periodic interest rate n is the number of payments usually months and a is the number of payments required in advance we're going to use a technique with your typical finance calculator to solve for payment the first step we need to do is to clear the time value of money registers and if necessary store the number of payments per year in p / y normally. This is going to be 12 then we're going to use the time value of money calculations you're going to store the residual value in FV you're going to store the interest rate in I / y or I / yr now with calculators such as the Hewitt Packer 12c you'll be using the periodic interest rate instead you're going to store the amount of payments for the lease in n and you're going to solve for present value PV the result is going to be negative and we're going to use that negative result in step three step three you're going to use the result from steps two and you add the lease amount or the price and then you're going to get the numerator right and then you're going to store that result in memory any memory register will do the next step is to use another time value of money calculation we're going to carry over the same values from the previous calculation we're going to store negative one in payment you're going to store the total amount of payments during the lease and subtract a or the number advance payments and store that in n and then you're going to store zero in FV future value and once again you're going to solve for present value take the present value that you calculated from step for a day to it or the number of dance payments if the equals key then hit the reciprocal key and multiply that times whatever you have stored in step 3 and then hit the equals key and then you will get your monthly lease payment should you have a calculator that operates in reverse polish notation such as the human packer 12c you'll use this method with the present value on the X stack you're going to add the advanced number of payments or or or a hit the + key hit the reciprocal key recall the contents of what you store from step 3 and hit the multiply. This is going to be your result your monthly lease payment let's work through an example you have the least amount of three thousand five hundred dollars residual value of one thousand dollars the length of the lease is going to be 48 months but the company is going to require three months of lease payments in advance using a finance rate at nine percent a year I'm going to demonstrate this problem using a texas instruments ba 2 plus but you can really use this technique with almost any finance calculator. Okay, the first thing I'm going to do is clear the time value of money registers and I'm going to check the payments per year setting which should be 12 since we are dealing with monthly payments that's good neck's it out there and then we're going to store the residual value in future value which is one thousand dollars we're going to store the annual rate which is nine into I / y or for the hewlett-packard calculators that would be the I / yr and we're going to store the number of payments of the lease into n which is 48 and then we're going to solve for present value and i get negative 690 8.61 we're going to take that result and then step three add the price or the lease amount which is thirty-five hundred dollars and I get a result of 2801 dollars and thirty-nine cents and I'm going to store this into memory I'm just going to pick memory 0 it really doesn't matter which memory register you pick we just want that stored number stored going to step 4 we're not going to clear press and value or any of the time value of money registers going to keep going where you enter negative 1 into payment the length of the lease which is 48 months subtract a which is three in this case because the lease required three payments in advance into n.
N is going to be 45 we're going to store 0 into future value and we're going to compute once again present value and I get a present value of 38.0 7 onto step 5 we're going to add a to that which is 33 advance payments hit the equals key then I get 40 1.07 take the reciprocal multiplied by recalling the memory register that we used in step three which is 2801 and 39 cents hit equals and that is going to be your lease payment per month sixty eight dollars and twenty-eight cents now for the advanced lease payments in the beginning you're going to pay this times the three months two hundred and four dollars and 61 cents.
For this particular beliefs you're going to pay two hundred and four dollars and 61 cents in advance and each month you're going to pay sixty eight dollars and twenty cents just to show you that this technique can be done on multiple calculators I'm going to demonstrate this next example on a Hewitt Packard 10 B 2 plus financial calculator this next example is this we have equipment valued at twenty-eight thousand dollars at the time of closing and it's expected to have a residual value of five thousand dollars at the end of 60 months this equipments going to be leased for 60 months on condition that there are four advanced payments and the financing is going to be eight percent once again we'll go through the steps first thing we need to do is to clear all the time value of money registers and we're going to go ahead and store 12 for monthly payments in the payment per year register. Okay, step one is complete the next step we're going to store the residual value in future value $5,000 we're going to store the rate in the eye / yr register which is eight percent interest rate the length of the term is going to be 60 months and we're going to solve for present value and i get negative 3356 dollars and five cents on to step three we're going to add the price to that result which is 28 thousand dollars and again i'm going to use memories 0 and we're going to store the amount of 24,000 643 dollars and ninety-five cents on this particular calculator I have to press orange shift then this key to store the amount into memory on to the next step we're nning type negative 1 in 2 payment this lease is going to require four payments in advance.
We're going to go 60 minus 4 and.
A 56 and n store 0 in future value the interest rate is maintained calculate the present value which is forty six point six one we go to step 5 we'll add the number of payments in advance which is four hit the equals sign then I'm going to do the reciprocal which on this particular calculator is going to be the orange shift division key and hit the multiplication key recall memory 0 hit the equals key and we get a lease payment of four hundred eighty six dollars and ninety seven cents.
That's going to be the monthly lease payment your advanced payment is going to be four times that or 1947 dollars and eighty eight cents and that is how you deal with leases that required payments some payments in advance thank you very much I hope you find this video helpful.