Which of the following is a method used to calculate lease value?

Present value analysis is a method used to calculate lease value by determining the current worth of a series of future cash flows generated by the lease, discounted back to the present using a specific rate of return. This technique takes into account the time value of money, which reflects how the value of money changes over time. By discounting future lease payments to their present value, analysts can arrive at a more accurate assessment of what those lease payments are worth today.

This method is particularly relevant in lease valuation because it enables a clear understanding of the cash flow over the lease term, factoring in potential risks associated with time and market changes. It provides a quantitative basis for comparing different leasing arrangements and helps stakeholders make informed decisions based on the expected profitability of leasing options.

In the context of other methods, while the market comparison approach examines comparable lease agreements in the market, and cash flow projections involve estimating future cash flows without discounting them to present value, those methods do not inherently adjust for the time value of money, which is the core advantage of present value analysis. Replacement cost estimation is typically not relevant to lease value calculations, as it focuses more on the cost to replace assets rather than evaluating future cash flows associated with leasing.