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Definition
Residual value is the estimated resale or salvage value of an asset once its useful life ends. It caps how far an asset is depreciated in a depreciation schedule and underpins lease and balloon pricing.
In plain terms
A confident residual value lowers your monthly lease cost, because you are only paying for the value you actually use up. But if the guess is wrong, someone bears the difference.
Why it matters for your company
On a lease, who carries residual-value risk (you or the lessor) is a key term. On owned assets, an optimistic residual understates depreciation and overstates profit. See operating lease.
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