How it works
The cash flow is the list of money in and out by year. Write that list first.
- Make a table with the same rows for A and B.
- Fix the start so year one is the first occupied year for both.
- Drop free rent and TI into the true year.
- Discount both. Write the rate. Write the leftovers.
Formula in words. Gap = NPV of A minus NPV of B, at one shared rate, after the same cost rules.
| Input | Meaning |
|---|---|
| Lease A cash | Rent, extras, credits |
| Lease B cash | The same rows |
| Shared rate | One visible percent |
| Shared window | Aligned start and stated term |
Worked example
Here is a teaching sample. It is not customer data and not a result from a live client.
Lease A start rent$41,000
Lease B start rent$38,130
Discount rate8%
Sample NPV A$355,216
| Metric | Lease A | Lease B |
|---|---|---|
| Start rent | $41,000 | $38,130 |
| Year-1 extras | $8,500 | $9,095 |
| Year-1 credit | $20,000 | $11,000 |
| Sample NPV | $355,216 | $346,373 |
| Year | Rent | Extras | Credit | Cash out | Value today |
|---|---|---|---|---|---|
| Year 1 | $41,000 | $8,500 | $20,000 | $29,500 | $27,315 |
| Year 2 | $42,230 | $8,755 | $0 | $50,985 | $43,711 |
| Year 3 | $43,497 | $9,018 | $0 | $52,515 | $41,688 |
| Year 4 | $44,802 | $9,288 | $0 | $54,090 | $39,758 |
| Year 5 | $46,146 | $9,567 | $0 | $55,713 | $37,917 |
| Year 6 | $47,530 | $9,854 | $0 | $57,384 | $36,162 |
| Year 7 | $48,956 | $10,150 | $0 | $59,106 | $34,488 |
| Year 8 | $50,425 | $10,455 | $0 | $60,880 | $32,892 |
| Year 9 | $51,938 | $10,769 | $0 | $62,707 | $31,369 |
| Year 10 | $53,496 | $11,092 | $0 | $64,588 | $29,917 |
| Sample NPV | — | — | — | — | $355,216 |
How to read the sample
Sample NPV for Lease A in a pair is about $355,216. A second path lands near $346,373. That gap is a talking point, not a promise.
Lease A gets a larger early credit in this teaching pair. If one path wins only because a credit sat in the wrong year, start over.
Year notes for Lease A in a pair
- Year 1 of Lease A in a pair has rent of $41,000.
- Shared building cost is $8,500.
- A credit of $20,000 lowers the cash you pay that year.
- Cash out this year is about $29,500. Lease A gets a larger early credit in this teaching pair.
- Later cash gets a shrink for time. At 8 percent, year 1 is worth about $27,315 today.
- Next, year 2 rent is $42,230.
- CAM, which is a shared building cost, is $8,755.
- There is no credit in this year.
- You pay about $50,985 this year after extras and credits. After the credit, the path is the test.
- Time shrinks later cash. At 8 percent, year 2 is worth about $43,711 today.
- Then year 3 rent is $43,497.
- Extras for the building come to $9,018.
- Credits skip this year.
- The net cash this year is about $52,515. Lease B would use the same rows with different numbers.
- Waiting has a price. At 8 percent, year 3 is worth about $41,688 today.
- After that, year 4 rent is $44,802.
- The shared building cost this time is $9,288.
- No extra credit shows up this year.
- Cash out this year is about $54,090. Do not invent a third hidden option in a side cell.
- Later cash gets a shrink for time. At 8 percent, year 4 is worth about $39,758 today.
- In year 5 of Lease A in a pair, rent is $46,146.
- Shared building cost is $9,567.
- There is no credit in this year.
- You pay about $55,713 this year after extras and credits. The last year keeps the step honest.
- Time shrinks later cash. At 8 percent, year 5 is worth about $37,917 today.
- Year 6 of Lease A in a pair has rent of $47,530.
- CAM, which is a shared building cost, is $9,854.
- Credits skip this year.
- The net cash this year is about $57,384. Keep this later year in the sum for the sample.
- Waiting has a price. At 8 percent, year 6 is worth about $36,162 today.
- Next, year 7 rent is $48,956.
- Extras for the building come to $10,150.
- No extra credit shows up this year.
- Cash out this year is about $59,106. 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 $34,488 today.
- Then year 8 rent is $50,425.
- The shared building cost this time is $10,455.
- There is no credit in this year.
- You pay about $60,880 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 $32,892 today.
- After that, year 9 rent is $51,938.
- Shared building cost is $10,769.
- Credits skip this year.
- The net cash this year is about $62,707. The row still belongs in the sum for the long path.
- Waiting has a price. At 8 percent, year 9 is worth about $31,369 today.
- In year 10 of Lease A in a pair, rent is $53,496.
- CAM, which is a shared building cost, is $11,092.
- No extra credit shows up this year.
- Cash out this year is about $64,588. 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 $29,917 today.
Add those year values. The sample NPV for Lease A in a pair is about $355,216. This is a teaching sample, not a client result.
Trusted sources
These are public references. They are not endorsements and not client results.