The minimum lease payments are the lowest amount that a lessee can expect to make over the lifetime of the lease. The minimum lease payments, including a guarantee of a residual if applicable, are used to value the lease by doing a net present value (NPV) calculation. The method of calculating minimum lease payments is laid out in the Statement of Financial Accounting Standards No. 13 (FAS 13), Accounting for Leases.

When I first joined TimeValue Software, it took me a while to understand the difference between Daily (compounding) and Exact Days. Both methods calculate interest each day but that is where the similarity ends.

Occasionally, we get a customer that has a unique situation where they have to do daily payments. Sometimes they are only during the business week and sometimes they are 7 days a week.  This is a calculation that you can do in TValue but it takes a little bit of creativity to do it.

Interest is defined as the cost of borrowing money. It can be either simple interest or compound interest. Simple interest is calculated on the principal amount of a loan only. Compound interest is calculated on the principal amount and also on any accumulated interest of previous periods that was not paid, and can thus be regarded as “interest on interest.”

The magic of compounding can work to your advantage when it comes to your investments and can be a potent factor in wealth creation. While simple and compound interest are basic financial concepts, becoming thoroughly familiar with them will help you make better decisions when taking out a loan or making investments, which may save you thousands of dollars over the long term.