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Students learn how to calculate NPV and related formulas.

 

 

NPV versus Other Investment Models

Concept:   Compare other investment models to NPV.

Objectives

  • Understand and define the Payback Period investment model
  • Understand and define the Discounted Payback investment model
  • Understand and define the Average Return of Book Value investment model
  • Understand and define the Internal Rate of Return (IRR)/Discounted Cash Flow investment model
  • Understand and define the Profitability Index/Benefit-Cost Ratio investment model
  • Understand how all these models compare to NPV

Suggested Grades:

Ninth Grade - Tenth Grade - Eleventh Grade - Twelfth Grade - Adult Education - Business Education

 

 

INVESTMENT MODELS LESSON PLAN

 

Teaching Materials

  • Lesson - NPV versus Other Investment Models  (see below for printable lesson)

  • Overhead

  • Many pre-calculated interest examples

 

Lesson Activity

  1. Review concept of NPV
    • NPV > 0 is desirable
    • advantages of using NPV
  2. Introduce Payback method
    • Define - # of years to earn a return on the investment
    • Work through example to illustrate
    • Ask class for advantages and disadvantages of this method
    • Discuss and present conclusions
  3. Introduce Discounted Payback
    • Look at formula - ask class why this method was derived
    • work through example
    • talk about advantages and disadvantages
  4. Introduce Average Return Of Book Value
    • look at formula / work through example
    • talk about advantages and disadvantages
  5. Introduce Internal Rate of Return (Discounted Cash Flow)
    • look at formula / work through example
    • talk about advantages and disadvantages
  6. Introduce Profitability Index
    • look at formula / work through example
    • talk about advantages and disadvantages
  7. End with a discussion of which is the best method
    • typically class will agree that NPV is best
Assessment/Evaluation

Have students complete worksheet. A passing grade is 70% or greater. 

 

 

 

Lesson Printable Materials - Worksheets

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

 

INVESTMENT MODELS LESSON

NPV versus Other Investment Models Lesson and Worksheet

Lesson and worksheet.

 

 

 

 

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