What does "residual value" refer to in leasing?

Residual value in leasing pertains specifically to the estimated value of the asset at the end of the lease term. This figure is crucial for both the lessor and lessee as it helps determine the monthly lease payments and offers insight into what the asset might be worth once the lease concludes.

Lessees benefit from understanding the residual value since it impacts their overall leasing costs, while lessors use it to assess potential returns on the asset. The residual value informs financial planning and asset management decisions, allowing both parties to gauge the future economic viability of the leased asset.

The other options do not accurately define residual value. The initial price of the asset relates to its purchase cost and is not a factor in the concept of residual valuation. The depreciated value during the lease represents how the asset loses value over time but does not specifically indicate what it will be worth at lease termination. Lastly, the value paid to end a lease early concerns financial penalties or buyout options rather than the intrinsic value of the asset itself at the lease's conclusion.