CALCULATING NET PRESENT VALUE LESSON PLAN TEACHING MONEY CONCEPT LEARNING FINANCE ECONOMIC PRINCIPLES BUSINESS MATH ACTIVITY SAMPLE EXAMPLE HELP STUDENTS PRACTICE TEACHER FINANCE SKILLS DEFINITION FORMULA ONLINE COURSE

 Students learn how to calculate NPV.

# NET PRESENT VALUE (NPV)

Topic:  Net Present Value Calculation

Concept:   Understand the concept of net present value (NPV) and how it is used to determine the value of future cash in today’s dollars.

In addition to calculating the present value of future cash flows when considering an investment project, it is also critical to assess the net present value. The net present value is simply the value of the expected future returns of an investment minus the value of expected future cost expressed in today’s dollars.

Objectives

• Understand the concept of net present value
• Understand the factors that are used in the NPV formula
• Know how to use the NPV formula
• Understand arbitrage
• Discuss the use of PV tables

NET PRESENT VALUE LESSON PLAN

Teaching Materials

• Lesson - Net Present Value Calculation  (see below for printable lesson)

• Many pre-calculated interest examples

Lesson Activity

1. Discuss Net Present Value (NPV)
1. Ask class why NPV is important?  What is it used for?
2. Talk about how it is used to make investment decisions
3. Present formula

2. Compare to PV formula: PV =
3. Show the derivation of the NPV formula (combination of the two)

• I = cost
• 0th term
• n=0 , means no cash flow
1. Work through examples
• Go through the steps carefully
• Talk about positive versus negative NPV
2. Discuss accuracy of NPV
• Only as good as the assumptions you make
3. Discuss arbitrage
• Why it doesn’t work in efficient markets
• Distribute tables
• Work through example using table

Print out the teaching lesson pages and exercise worksheets for use with this lesson:

 NET PRESENT VALUE CALCULATION LESSON Lesson and worksheet. Do you have a recommendation for an enhancement to this finance lesson, or do you have an idea for a new lesson?  Then please leave us a suggestion. Back to more Basic Finance and Economics Lessons, Lesson Plans, and Worksheets               For teaching and learning general money skills, personal finance, and money management, please go to the Money Instructor home page.

 Teaching Calculating Net Present Value Interest Figure Calculator Business Math and Banking Financial Skills Lesson Plan - High School Student Secondary Education Adults College Teens Teenagers Free Instruct School Young Adults Classroom Review Activities Consumer Economics 101 Finance Education 7th 8th 9th 10th 11th 12th grade