FMV Lease Rate Calculator
Results:
Understanding Fair Market Value (FMV) Lease Rate
A Fair Market Value (FMV) lease is a type of lease agreement where the monthly lease payment is calculated based on the asset's expected depreciation, plus a profit margin for the lessor. At the end of the lease term, the lessee typically has the option to purchase the asset for its predetermined residual value, which is intended to reflect its fair market value at that future point.
How the FMV Lease Rate is Calculated
The core of an FMV lease rate calculation involves determining the total cost of the asset that needs to be recouped over the lease term, adding a profit, and then dividing that by the number of months in the lease. Here's a breakdown of the components:
- Asset Cost: This is the initial purchase price or acquisition cost of the asset being leased.
- Lease Term (Months): The duration of the lease agreement, expressed in months.
- Residual Value Percentage: This is a crucial factor. It's the percentage of the original asset cost that the asset is expected to be worth at the end of the lease term. A higher residual value means the asset depreciates less, resulting in lower lease payments.
- Residual Value Amount: Calculated as
Asset Cost * (Residual Value Percentage / 100). This is the amount the lessor expects to recover from selling the asset after the lease. - Depreciable Value: The portion of the asset's cost that will be "used up" during the lease. It's calculated as
Asset Cost - Residual Value Amount. - Desired Profit Margin: The percentage of profit the lessor aims to make on the lease.
- Profit Amount: Calculated as
Depreciable Value * (Desired Profit Margin / 100). This is the total profit the lessor wants to earn over the lease term. - Total Lease Cost: The sum of the depreciable value and the profit amount.
Total Lease Cost = Depreciable Value + Profit Amount. - Monthly Lease Rate: The total lease cost divided by the number of months in the lease term.
Monthly Lease Rate = Total Lease Cost / Lease Term (Months).
Example Calculation
Let's consider an example:
- Asset Cost: $50,000
- Lease Term: 36 months
- Residual Value Percentage: 50%
- Desired Profit Margin: 10%
Step 1: Calculate Residual Value Amount
$50,000 * (50 / 100) = $25,000
Step 2: Calculate Depreciable Value
$50,000 (Asset Cost) – $25,000 (Residual Value) = $25,000
Step 3: Calculate Profit Amount
$25,000 (Depreciable Value) * (10 / 100) = $2,500
Step 4: Calculate Total Lease Cost
$25,000 (Depreciable Value) + $2,500 (Profit) = $27,500
Step 5: Calculate Monthly Lease Rate
$27,500 (Total Lease Cost) / 36 (Months) = $763.89 (approximately)
Therefore, the monthly lease rate for this FMV lease would be approximately $763.89.
This calculator helps you quickly determine a fair monthly lease rate by inputting the key parameters of the asset, lease term, desired residual value, and your profit expectations.