Underlying the widely used multiple-investment-sinking fund (MISF) met
hod for lease evaluation is the determination of a derived lease rate
which is a specific rate that provides the lessor with the required yi
eld on equity. To compute this derived lease rate, trial-and-error tec
hniques are traditionally used. In addition to being based on trial-an
d-error, the employment of these techniques requires a specification o
f the precise time structure of the various types of cash flows involv
ed, and this can be somewhat technically cumbersome. To overcome these
shortcomings, this study presents a mathematical derivation of a form
al expression for the derived lease rate. Due to the widespread use of
the MISF method, it seems that the formal expression developed here c
an be very useful for decision makers (at both the corporate as well a
s the individual-investor levels) in determining the derived lease rat
e in practice. Another desirable property of the model is that it can
be easily employed for the purpose of studying the effects of changes
in the various parameters involved on the derived lease rate.