 SAP Knowledge Base Article - Public

# 3401049- Applied Interest Days for Net Present Value Calculation

### Symptom

The Net Present Value (NPV) of a lease contract is calculated using the Discounted Cash Flow Model (DCF). This implies a series of discounted lease payments (R).

The NPV of a single lease payment would follow the formula: The example basic lease contract over 1 year has the following parameters:

 Leasing Installment: 10,000.00 USD Payment Form: In Arrears Interest: 5% Start Date: 16.10.2023 Term End Date: 15.10.2024 Recurrence: Yearly Every: 1 Year(s) Month of the Year: 10

According to provided DCF formula you would expect the following NPV:

10,000 USD /(1+0.05) = 9,523.80 USD

The NPV, however, is calculated as 9,517.36 USD.

### Reproducing the Issue

1. In the Lease Contract Management work center go to the Lease Contract view.
2. Find lease contract ABC.
3. Via button Reports open Report: Lease Contract Valuation Cash Flow .
4. In Key Figure Settings add the attribute Net Present Value.

The report produced the following values for applied example lease contract ABC.

 Net Present Value: 9,517.36 USD

As well as derived values for:

 RoU Asset Opening Balance Company Currency: 9,517.36 USD Lease Opening Balance Company Currency: 9,517.36 USD

### Cause

For the true periodical lease payment calculation you have applied 365 days.

According to financial lease calculation standards for interest calculation a Financial Year consists of 360 days. This is considered in the discount factor (DF) when discounting a lease payment according to a date in the future (t).

### Resolution

The lease payment is due after 365 days on 15/10/2024.

This will have to be related to 360 days. For a lease payment due in 1 year the mathematical power (t) will compute as  365/360.

For a 1 year Lease Calculation (In Arrears) the NPV for lease payment R would compute as.

10,000 USD
---------------------------------
(1 + 0.05); Power (365/360)

I.e. The Lease Payment (R) will be discounted by discount factor DF.

In MS Excel:
=1/POWER((1+0.05),365/360) = Discount Factor (DF) = 0.951735798

The NPV will compute as:

In MS Excel:
=ROUND(10,000* DF,2)
= 9,517.36

### Keywords

KBA , AP-ACC-LM , Accounting Lease Management , Problem