What does Fair Market Value (FMV) signify in leasing terms?

Fair Market Value (FMV) in leasing terms is defined as the calculated worth of a product or company in a marketplace. This concept is used to establish a price that reflects what a willing buyer would pay a willing seller for an asset in an open and competitive market, where both parties have reasonable knowledge of the relevant facts. FMV takes into account various factors such as the current condition of the asset, market demand, and comparable sales data.

In the context of leasing, FMV is particularly important as it helps determine the value of leased equipment at the end of a lease term. This valuation is used to assess the buyout price or residual value of the asset, ensuring that it is fair and reflects the true market conditions at that time. Therefore, understanding FMV is crucial for both lessees and lessors to make informed decisions regarding lease agreements and asset valuation.