Enter the future value, present value, and total number of lease payments into the calculator to determine the lease discount rate. This calculator can also evaluate any of the variables given the others are known.
Lease Discount Rate Formula
The following formula is used to calculate the lease discount rate.
DR = (FV - PV) / (FV * n)
Variables:
- DR is the lease discount rate (decimal)
- FV is the future value of the lease payments ($)
- PV is the present value of the lease payments ($)
- n is the total number of lease payments
To calculate the lease discount rate, subtract the present value of the lease payments from the future value of the lease payments. Then, multiply the future value of the lease payments by the total number of lease payments. Divide the first result by the second result to get the lease discount rate.
What is a Lease Discount Rate?
A lease discount rate, also known as the lease interest rate, is the interest rate used in the financial calculations to determine the present value of a lease. It is used to discount future cash flows from a lease to their present value, which is the amount that the lessee would need to invest currently to cover the lease payments in the future. This rate is often determined by the lessee’s incremental borrowing rate or the rate implicit in the lease.
How to Calculate Lease Discount Rate?
The following steps outline how to calculate the Lease Discount Rate.
- First, determine the future value of the lease payments ($).
- Next, determine the present value of the lease payments ($).
- Next, gather the formula from above = DR = (FV – PV) / (FV * n).
- Finally, calculate the Lease Discount Rate.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
future value of the lease payments ($) = 5000
present value of the lease payments ($) = 4000
total number of lease payments = 5
