# How to Calculate Equipment Rental Rates

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Equipment rental or short-term leasing is a valuable tool for companies to meet short-term needs without committing large amounts of capital. Equipment dealers have been using this as an alternative source of income for years. This is especially the case for large manufacturers or construction companies.

Review the definition of a rental or short-term lease. A rental is a short-term contract, between the owner and the renter, to use equipment or other property for a fixed amount of time. The contract should specify the payment terms and other details.

Work through an example calculation. Calculating regular monthly payments is the same as calculating a present value of annuity payment, which calls for present value calculations. Let's assume we have a copy machine with a present value of \$3,500 and a residual value (value at the end of the equipment after its useful life) of \$1,000. Note that some equipment may have no residual value after rental. Let's also assume that the copy machine has a rental life of two years.

Determine the rate of interest. The rate of interest for the present value calculation (PV) is the average rate of interest you are paying on your equipment. For this example, let's assume a rate of 9 percent.

Calculate the payment amount. You can calculate the minimum rental amount by using the present value formula in spreadsheet software or a financial calculator. The formula asks for certain inputs. In this case your interest rate is 9 percent divided by 12 (.09/12). This equals .0075 and should be used for "i" or rate of interest. Two years is the equivalent of 24 periods (or months). Use this number for "N". The PV is \$3,500; this is how much the copier cost and the residual value after two years of renting is estimated at \$1,000. Use this number (\$1,000) for FV (future value). Solve for the payment and you will get \$121.71.

Calculate a minimum weekly or daily rate by dividing the monthly rate by four (monthly) or 30 (daily). Keep in mind that this represents the minimum amount you would charge to rent the copier.

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