Calculating APR & lease or loan

[newmac]

(2 questions in this post btw)

I'm purchasing new computer equipment for my dad's graphic company...

The equipment costs $105,000 up front, but I can lease it for 3 years at $4,500 (monthly). The vendor I am going through is actually waiving the first month for me so it is 35 months, but he wants a non refundable $500 fee up-front. The residual value for the equipment is $0 after the 3 years, so yes it is worthless at that point. I'm making a very simple worksheet in excel that my dad wants to see (he's overseas) so he can evaluate this offer.

My question at this point is what is the implied APR of the lease? (what formula do I use to calculate the APR rate? RATE?)


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Also, the second question I have is...I can finance this amount at an APR of 18% through the bank. They have a 1% fee (rolled into the amount) and it is continuously compounded. I want to finance enough so that I have $105,000 to give to my vendor after the bank takes 1% of the financed amount).

What is the annual rate I use for this loan (they want annual payments) when comparing it to the lease? What excel formula do to get this value?

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I appreciate your help. I have uploaded where I am at so far in this worksheet. I got an APR of 29.36% but I think I am wrong. I am trying to decide if i should lease or get a loan from my bank this weekend.

http://www.2shared.com/file/pGFPvabf/APRleaseloan.html

 

[RonB1111]

Lease:
1. You've used the correct formula, RATE()
2. The $500 fee should reduce the $105,000 pv, so use 104,500 in the formula. This increases the rate from 29.36% to 29.74%
3. Do you own the equipment at lease end for $0?? Read your lease doc's fine print to make sure. Many leases require you to return the equipment to them at lease end (you pay shipping cost) or pay them a buyout fee at lease end which could be very significant (eg: 10% to 30% of $105,000).
4. Also read the fine print to understand other fees passed on to you.

Bank Loan:
1. If loan fee is 1%, you'd need $106,060.61 to net 105,000. (105,000 / [1-loanfee%])
2. Bank loan is slightly higher than 18% due to loan fee (assuming 1st annual payment is due at the end of year 1 - read loan docs to verify.

 

[newmac]

1. I don't need to return the equipment after.

2. what excel formula did you use to figure out the annual bank rate loan? Yes it is paid at the end of the year...how did you account for the continuous compounding?

thank you

 

[RonB1111]

You mentioned that the bank ARP was 18%, but didn't say what the annual payment would be.

This formula calculates the payment:
=PMT(rate,nper,pv)
=PMT(0.18,3,-106060) which calculates $48,780/year
Is this what your actual payment will be?