This shortcut only gives an estimate of the RATE although it is very close. RATE is used to compute adjusted lease balances, not payments unless the fund provider uses and interest rate in lieu of an MF. If you want to know exactly what the periodic (monthly) interest rate used to amortize the lease in determining adjusted lease balances for purposes of computing early term purchase options, then you need to use the RATE formula…
RATE = RATE = RATE(term,base pay,-adj. cap,res,1)
Interest Rate = 2 x MF only gives an estimate of the monthly rate as a decimal. If it were used to compute adjusted lease balances, the balances would be off a bit.
Not sure if you read my post in the following thread…
Proving Money Factor x 2400 = Interest Rate - Ask the Hackrs / Buy/Finance - FORUM | LEASEHACKR
where I do provide more detail…
Let’s look at the MF formula for computing the monthly base payment…
The above shows that interest is levied on the average depreciated lease balance and illustrates that…
It’s a bit more complicated than this and involves a Taylor series expansion encountered in calculus which is why the above only gives an estimate of the interest rate but it’s very close.
The amount financed in a lease is always the adjusted capitalized cost (Adj. Cap) which is analogous to the loan amount in a loan and is determined as follows…
Gross Cap = Sell Price + Amounts Financed (e.g., capitalized fees such as the acquisition fee)
Adj. Cap = Gross Cap – Cap Reduction
Depreciation = Adj. Cap – RV Note: Depreciation is not Sell Price – RV
??? Let me know.