REFX Infinite Building (perpetual term): contract master data & postings (public cloud)

[Cedric_Manhaeve]

Dear Partner community,

We have a case for perpetual building leases. There is a standard term for 50 years with automatic renewals, each time 50-year renewal. Today this manage this in Excel and use a term of 999 years (= infinite).

In S4, they would like to calculate the NPV lease liability. This is by default long-term (> 1 yr).

When trying to simulate the valuation for a very large probable end date for example, we receive an error stating that the NPV calculation is not possible.

Thus, is it possible to valuate infinite real estate leases in S4? If so, how should the key parameters be maintained?

Thank you,

Cedric

[HenrikeGrötecke]

Hello, thank you for your question. It has been forwarded to the experts. Kind regards, Henrike

[anja_wolf-galka]

Hi Cedric, you have mentioned today this is managed in Excel. I am interested in how Excel performs an NPV calculation based on a term of 999 years. The discounting of payments over such a very long period of time is the problem during the calculation of the net present value. Have you tried it already with a probable end in 50 years (your mentioned standard term)? Best regards, Anja

[Cedric_Manhaeve]

Hi Anja & Henrike, thank you for looking into my question! The calculation is rather straightforward, eg with a quarterly payment: =-PV(quarterly discount rate; 4 quarters * 999 years;quarterly payment;;1). In the case we would use 50 years, it would follow the 'finite lease' calculations and saw some differences with infinite leases.

[Cedric_Manhaeve]

@HenrikeGrötecke, @anja_wolf-galka , would you have any feedback on my latest comment? Many thanks, Cedric

[LilingJia]

Hi @Cedric_Manhaeve ,

Good Day! 

I read from the comment history that you tried to post for perpetual building leases.

For the long-term leases contract, normally we would calculate with discounting then reflect the present value per period. also, for how long you could post is based on the local accounting rules. 

But in your calculation, it looks like you were just trying to evenly devide those into 4 *999 pieces, without considering the insterest or anything.

could you please confirm if this is really what business users request for? 

best regards, 

liling 

[Cedric_Manhaeve]

Hi @LiLing, I'm a bit lost with your question. What we really want to achieve: the same calculation result compared to the Excel formula with a quarterly payment =-PV(quarterly discount rate; 4 quarters * 999 years;quarterly payment;;1). In such case, the periodic liability clearing would be equal the periodic interest.

Is there a way to achieve this?

[LilingJia]

HI @Cedric_Manhaeve ,

Your case is new to me. I have no experience in handling of year 999 for asset handling. 

best regards,

liling 

[Cedric_Manhaeve]

Hi @LiLing, I believe a part of your answer went missing?