Texas Instruments BA II PLUS PRO User Manual - Page 37
Example: Computing Present Value of a Lease With Residual Value, of each month - cash flow
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To Compute present value of 4th cash flow. Sum to memory. Recall total present value. Subtract original cost. Press % . Display PV= 6,830.13 D H 1 J 1 B 23000 N 6,830.13 23,171.23 171.23 Answer: The present value of the cash flows is $23,171.23, which exceeds the machine's cost by $171.23. This is a profitable investment. Note: Although variable cash flow payments are not equal (unlike annuity payments), you can solve for the present value by treating the cash flows as a series of compound interest payments. The present value of variable cash flows is the value of cash flows occurring at the end of each payment period discounted back to the beginning of the first cash flow period (time zero). Example: Computing Present Value of a Lease With Residual Value The Peach Bright Company wants to purchase a machine currently leased from your company. You offer to sell it for the present value of the lease discounted at an annual interest rate of 22% compounded monthly. The machine has a residual value of $6500 with 46 monthly payments of $1200 remaining on the lease. If the payments are due at the beginning of each month, how much should you charge for the machine? Time-Value-of-Money and Amortization Worksheets 33