Determining Monthly Payments for New Equipment Financing
A small business owner needs to finance new equipment to expand operations and wants to calculate the fixed monthly payment required for the lease, given the equipment's total cost, the annual interest rate, and the lease term in years, to manage cash flow effectively and make informed investment decisions.
=-PMT(B2/12, C2*12, A2) How it works: This formula leverages the PMT function to calculate the constant monthly payment for financing business equipment. It correctly converts the annual interest rate and the lease term (in years) into their monthly equivalents, ensuring an accurate and predictable monthly expense for the business, which is crucial for cash flow management and budgeting.
Data Setup
| Equipment Cost | Annual Interest Rate | Lease Term (Years) |
|---|---|---|
| 75000 | 0.07 | 5 |
Step-by-Step Guide
Identify the equipment cost (A2), the annual interest rate (B2), and the lease term in years (C2) from your financing proposal.
Divide the annual interest rate by 12 to get the monthly rate (B2/12).
Multiply the lease term in years by 12 to get the total number of monthly payments (C2*12).
Input these converted values into the PMT function: `=-PMT(monthly_rate, total_payments, equipment_cost)`.
The negative sign before PMT is used to display the payment as a positive value, as PMT typically returns a negative value representing an outflow.
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