Trial and error method in Lease

[iahmad]

Given / Known Data

Cost of a Vehicle = 50,000
P.M. Rental = 2,000
Lease term = 3
Total Lease payment = 2,000*12*3= Rs. 72,000

Required
PV of Minimum Lease Payment(MLP)?
Implist Interest rate?

Solution By using IRR

IRR is the rate at which NPV = 0, it means Cost - PV of MLP = 0
Let (bY hit & trial method) we use R2 = 12%
PV of MLP = 72,000(1.12)^-3= Rs. 51,248
i.e 50,000 - 51,248 = Rs.1,248
Let we use R1 = 14%
PV of MLP = 72,000(1.14)^-3= Rs. 48,597
i.e 50,000 - 48,597 = Rs.(1,403)

Now as per formula

R1+NPV1/NPV1+NPV2*(R2-R1)

12%+1,248/ (1248+1403) * (14-12)

12.94 OR 13%

SO the impleset rate is 13% using the hit & trial method.
If u need any further assistance, plz feel free to ask.
Thanks