Lease Example Disclaimer. This example illustrates one application of the method. The results shown here and the results in your situation may differ. These differences occur for three reasons: (1) Laws vary from state to state, (2) the computer programs used by lessors differ, and (3) the contracts used by lessors differ. In the example, the monthly rent charge is calculated as 1/12 of the annual rent charge. Your lease agreement, even if it uses this method, may not work like the lease in this example. The example addresses the rebating of rent charges only, not any other charges that may be included in the lease.

Example: Rule of 78 Method

 Adjusted capitalized cost \$18,800.00 Term 48 months Base monthly payment     (without sales tax) \$244.69 Residual value \$12,350.00

 First payment rent charge = \$5,295.10 × (48 ÷ (1+2+3+ . . + 48)) = \$216.13 First payment depreciation = \$244.69 - \$216.13 = \$28.56 End of month 1 lease balance = \$18,800.00 - \$28.56 = \$18,771.44 Second payment rent charge = \$5,295.10 × (47 ÷ (1+2+3+ . . + 48)) = \$211.62 Second payment depreciation = \$244.69 - \$211.62 = \$33.07 End of month 2 lease balance = \$18,771.44 - \$33.07 = \$18,738.37 Full-term rent charge = Total base payments - Depreciation Total base payments = \$244.69 × 48 = \$11,745.12 Depreciation = Adjusted capitalized cost - Residual value Full-term rent charge = (\$244.69 × 48) - (\$18,800 - \$12,300) = \$5,295.10

Additional payments do not reduce the lease balance in the month paid. If an additional \$1,000 payment is made at the end of month 1, it is treated as prepayment of the monthly payments due at the end of months 2, 3, 4, and 5. If the remaining payments are made on time or within the grace period, there is no savings of the full-term projected rent charge because the amount of rent charge of each payment is precomputed. If the lease is prepaid after 24 payments, the balance will be \$16,871.76, which is \$1,024.34 higher than the balance would be under the Constant Yield (Actuarial) method.

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