How To Calculate Years Purchase ( YP )?

understand these few terms before proceed to the calculation


1) YP = years' purchase

2) PV = Present Value

3) i = interest rate
  • base rate from Bank Negara = 6.85% + 1.5% = 8.35% )
  • 1.5% is the risk factor which can be adjusted to maximum to 2.5% depend on the risk is higher
  • for easy calculation we assume that the i = 8.0% for this exercise
4) n = numbers of years
  • years of the tenancy agreement


Freehold
YP = 1/i


Leasehold
PV is Present Value  1 / (1+i )n


YP = 1 - PV / i


we assume that i = 8.0%, n = 5 years

PV
= 1 / ( 1+ 0.08 )5
= 1 / ( 1.08 )5
= 1 /1.669
= 0.6806


YP
= (1 - PV) / i
= (1 - 0.6806) / 0.08
= 0.319 / 0.08
= 3.9927


Capital Value
= Net Income x Years' Purchase
= RM 8,000 x 3.9927
= RM 31,941



Back
at