Residual Value

How much a fixed asset is worth at the end of its lease, or at the end of its useful life.

If you lease a car for three years, its residual value is how much it is worth after three years. The residual value is determined by the bank that issues the lease before the lease begins. It is based on past models and future predictions. It is an important factor in determining the car's monthly lease payments (the other factors are the interest rate and tax). In capital budgeting projects, residual values reflect how much you can sell the asset for after the firm has finished using it or once the asset-generated cash flows can no longer be accurately forecasted.

If you are a business owner, let's say your desk has a useful life of seven years. How much the desk is worth at the end of seven years (its fair market value as determined by agreement or appraisal) is its residual value (also known as salvage value). To manage asset-value risk, companies that have lots of expensive fixed assets (e.g., machine tools, vehicles, medical equipment) may purchase residual value insurance to guarantee the value of properly maintained assets at the ends of their useful lives.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Residual value — is one of the constituents of a leasing calculus or operation. It describes the future value of a good in terms of percentage of depreciation of its initial value.Example: A car is sold at a list price of $20,000 today. After a usage of 36 months …   Wikipedia

  • residual value — The value for which an asset or equipment can be disposed of in the open market once it has been released from a leasing agreement. It can also mean the written down book value of the equipment which would usually be less than its market value.… …   Law dictionary

  • residual value — noun (finance) The expected selling price of an asset at the end of its useful life • • • Main Entry: ↑residue …   Useful english dictionary

  • residual value — Term used to describe the market or sale value of leased equipment (net of removal or disposal costs) at the end of the lease term. In most cases, it is projected or estimated. Sometimes called salvage value. With some exceptions, national bank… …   Financial and business terms

  • Residual value — Usually refers to the value of a lessor s property at the time the lease expires. The New York Times Financial Glossary * * * residual value residual value ➔ value1 * * * residual value UK US noun [C or U] ► (also residuals [plur …   Financial and business terms

  • residual value — See stated residual value expected residual value …   Dictionary of automotive terms

  • residual value — See: net residual value …   Accounting dictionary

  • residual value — likutinė vertė statusas T sritis turto vertinimas apibrėžtis 1) Numatoma turto vertė pasibaigus jo naudingo tarnavimo laikui; 2) įvertinta suma, kurią verslo subjektas gautų perleisdamas turtą, atėmus įvertintas perleidimo sąnaudas, jeigu turtas… …   Lithuanian dictionary (lietuvių žodynas)

  • residual value — likvidacinė vertė statusas T sritis Gynyba apibrėžtis Suma, kurią tikisi gauti organizacija už turtą, pasibaigus jo naudingo eksploatavimo laikui ir atskaičius laukiamas likvidavimo išlaidas. atitikmenys: angl. residual value ryšiai: susijęs… …   Lithuanian dictionary (lietuvių žodynas)

  • residual value — 1. The value of an asset at the end of its *useful economic life. Residual values tend to be based on resale or *scrap values, less any disposal or selling costs. The costs of assets subjected to *amortization normally exclude residual values. 2 …   Auditor's dictionary

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.