Residual value

Residual value

Residual value is one of the constituents of a leasing calculus or operation. It describes the future value of a good in terms of percentage of depreciation of its initial value.

Example: A car is sold at a list price of $20,000 today. After a usage of 36 months and 50,000 miles its value is contractually defined as 50% or $10,000. The credited amount, on which the interest is applied, thus is $20,000 present value minus $10,000 future value.

Residual values are contractually dealt with either in terms of closed contracts or open contracts.

In accounting, Residual value is another name for salvage value, the remaining value of an asset after it has been fully depreciated.

The residual value derives its calculation from a base price, calculated after depreciation.

Residual values are calculated using a number of factors, generally a vehicles market value for the Term and Mileage required is the start point for the calulation, followed by Seasoanlity, Monthly adjustment, Lifecycle and Disposal performance. The Leasing company setting the Residual Values (RV's) will use their own historical information to insert the adjustment factors within the calculation to set the end value being the Residual value.


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