residual value

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Residual value

Usually refers to the value of a lessor's property at the time the lease expires.

Residual Value

In accounting, an estimate of the value of an asset at the end of its depreciation. For example, a firm's computer depreciates each year. When it breaks down or becomes obsolete, it has a residual value; it is calculated by the best guess of the net cash inflow when it is sold at the end of its life. It will never be above the blue book value.

In price regulated industries, the residual value may be a negative value because it includes the net cash outflow in removing the asset from where it was used. For example, nuclear energy plants must store the nuclear waste at the end of their useful life. This cost is a contributing factor in the residual value. It is also called the salvage value or scrap value. See also: Absolute Physical Life, Obsolescence.

residual value

The price at which a fixed asset is expected to be sold at the end of its useful life. Residual value is used in calculating some types of depreciation. Also called salvage value, scrap value.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

residual value

scrap value

the amount for which a FIXED ASSET can be sold at the end of its useful working life. The anticipated residual value is taken into account in calculating the amount of DEPRECIATION to be charged against PROFITS each year for the use of the asset during its life. In many cases residual values are assumed to be nil, given the small residual values of many fixed assets and the difficulties of forecasting what such values may be many years ahead.

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References in periodicals archive ?

Finally, the net residual value in month 66 represents the lease contract residual value, reduced by the return of the lease security deposit [$12,500 - $499 = 12,001].

In general, the lower the vehicle residual value, the lower the value of K necessary to equate the future value of cash inflows derived from leasing with the net residual value ([R.sub.n]), and the more attractive the lease option.

The net residual value ([R.sub.n]) of $4,659 shown in Table 1 is equal to the vehicle's $4,884 residual value, less the return of the $225 security deposit.

The effective annual lease hurdle rate (K) necessary to transform the net cash inflows attributable to lease financing into the net residual value ([R.sub.n]) at the maturity of the lease is 11.75 percent.

Leasing versus borrowing: evaluating alternative forms of consumer credit

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