If a residual value guidebook projects that the vehicle will have a wholesale value of $12,000 after 3 years and the residual value in the lease is $11,500, the probability that the vehicle will be worth less than $11,500 might be 35%. (Note: This example contains a hypothetical probability and a hypothetical average amount of depreciation saved. These amounts are not derived from any actual data.) If the lease residual value on that same vehicle is instead $13,000, the probability that the vehicle will be worth less than $13,000 might be 75%. The following table illustrates one method of analyzing the value of the protection from excess depreciation afforded by these two leases compared with a loan agreement. The example assumes that you would trade the vehicle for the $12,000 amount listed in the residual value guidebook.

 

		Loan	Lease A	Lease B
A	Purchase price (finance) or gross capitalized cost (lease)	$22,000	$22,000	$22,000
B	Residual value stated in the lease	n.a.	$11,500	$13,000
C	Depreciation stated in the lease (A – B)	n.a.	$10,500	$9,000
D	Projected wholesale value at end of term	$12,000	$12,000	$12,000
E	Projected depreciation (A – D)	$10,000	$10,000	$10,000
F	Probability that actual depreciation at end of term will be greater than depreciation stated in the lease (C)*	n.a.	35%*	75%*
G	Average depreciation saved if actual depreciation exceeds depreciation stated in the lease*	n.a.	$500*	$1,000*
H	Value of protection from excess depreciation (F × G)	0	$175	$750

n.a. Not applicable

The amounts marked by asterisks (*) are only hypothetical probabilities and averages. On any given vehicle, the savings could be substantially more or less than the calculated value of protection from excess depreciation. See the section Future Value for a discussion of the wide range of items that can affect a vehicle's value.