How it works
The cash flow is the list of money in and out by year. Write that list first.
- First compare both leases over the shorter shared window.
- Then show the longer lease's extra years as a second view.
- If a renewal exists, price staying and leaving as cases.
- Say what you assume about the space after year five.
Formula in words. Shared-window NPV first. Extra-year NPV second. Do not silently add them.
| Input | Meaning |
|---|---|
| Short term | The smaller number of years |
| Long term | The extra years |
| Renewal | A choice, not a fact |
| Exit cost | If leaving the short deal has a cost |
Worked example
Here is a teaching sample. It is not customer data and not a result from a live client.
Lease A start rent$39,000
Lease B start rent$36,270
Discount rate8%
Sample NPV A$357,531
| Metric | Lease A | Lease B |
|---|---|---|
| Start rent | $39,000 | $36,270 |
| Year-1 extras | $9,500 | $10,165 |
| Year-1 credit | $5,000 | $2,750 |
| Sample NPV | $357,531 | $344,305 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $39,000 | $9,500 | $5,000 | $43,500 | $40,278 |
| Year 2 | $39,975 | $9,785 | $0 | $49,760 | $42,661 |
| Year 3 | $40,974 | $10,079 | $0 | $51,053 | $40,528 |
| Year 4 | $41,999 | $10,381 | $0 | $52,380 | $38,501 |
| Year 5 | $43,049 | $10,692 | $0 | $53,741 | $36,575 |
| Year 6 | $44,340 | $11,013 | $0 | $55,353 | $34,882 |
| Year 7 | $45,670 | $11,343 | $0 | $57,013 | $33,267 |
| Year 8 | $47,040 | $11,683 | $0 | $58,723 | $31,726 |
| Year 9 | $48,451 | $12,033 | $0 | $60,484 | $30,257 |
| Year 10 | $49,905 | $12,394 | $0 | $62,299 | $28,856 |
| Sample NPV | — | — | — | — | $357,531 |
How to read the sample
Sample NPV for the long-term path is about $357,531. A second path lands near $344,305. That gap is a talking point, not a promise.
Year one of a longer path still needs a credit note. If one path wins only because a credit sat in the wrong year, start over.
Year notes for the long-term path
- Year 1 of the long-term path has rent of $39,000.
- Shared building cost is $9,500.
- A credit of $5,000 lowers the cash you pay that year.
- Cash out this year is about $43,500. Year one of a longer path still needs a credit note.
- Later cash gets a shrink for time. At 8 percent, year 1 is worth about $40,278 today.
- Next, year 2 rent is $39,975.
- CAM, which is a shared building cost, is $9,785.
- There is no credit in this year.
- You pay about $49,760 this year after extras and credits. Shared-window years should match the short deal's years.
- Time shrinks later cash. At 8 percent, year 2 is worth about $42,661 today.
- Then year 3 rent is $40,974.
- Extras for the building come to $10,079.
- Credits skip this year.
- The net cash this year is about $51,053. From here a 10-year deal keeps going.
- Waiting has a price. At 8 percent, year 3 is worth about $40,528 today.
- After that, year 4 rent is $41,999.
- The shared building cost this time is $10,381.
- No extra credit shows up this year.
- Cash out this year is about $52,380. These later years are the extra product.
- Later cash gets a shrink for time. At 8 percent, year 4 is worth about $38,501 today.
- In year 5 of the long-term path, rent is $43,049.
- Shared building cost is $10,692.
- There is no credit in this year.
- You pay about $53,741 this year after extras and credits. Do not hide them inside an average.
- Time shrinks later cash. At 8 percent, year 5 is worth about $36,575 today.
- Year 6 of the long-term path has rent of $44,340.
- CAM, which is a shared building cost, is $11,013.
- Credits skip this year.
- The net cash this year is about $55,353. Keep this later year in the sum for the sample.
- Waiting has a price. At 8 percent, year 6 is worth about $34,882 today.
- Next, year 7 rent is $45,670.
- Extras for the building come to $11,343.
- No extra credit shows up this year.
- Cash out this year is about $57,013. The row still belongs in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 7 is worth about $33,267 today.
- Then year 8 rent is $47,040.
- The shared building cost this time is $11,683.
- There is no credit in this year.
- You pay about $58,723 this year after extras and credits. Keep this later year in the sum for the long path.
- Time shrinks later cash. At 8 percent, year 8 is worth about $31,726 today.
- After that, year 9 rent is $48,451.
- Shared building cost is $12,033.
- Credits skip this year.
- The net cash this year is about $60,484. The row still belongs in the sum for the long path.
- Waiting has a price. At 8 percent, year 9 is worth about $30,257 today.
- In year 10 of the long-term path, rent is $49,905.
- CAM, which is a shared building cost, is $12,394.
- No extra credit shows up this year.
- Cash out this year is about $62,299. Keep this later year in the sum for the long path.
- Later cash gets a shrink for time. At 8 percent, year 10 is worth about $28,856 today.
Add those year values. The sample NPV for the long-term path is about $357,531. This is a teaching sample, not a client result.
Trusted sources
These are public references. They are not endorsements and not client results.