INVESTMENT MODELS 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 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

INVESTMENT MODELS LESSON PLAN

Teaching Materials

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

• Many pre-calculated interest examples

Lesson Activity

1. Review concept of NPV
• NPV > 0 is desirable
2. Introduce Payback method
• Define - # of years to earn a return on the investment
• Work through example to illustrate
• Discuss and present conclusions
3. Introduce Discounted Payback
• Look at formula - ask class why this method was derived
• work through example
4. Introduce Average Return Of Book Value
• look at formula / work through example
5. Introduce Internal Rate of Return (Discounted Cash Flow)
• look at formula / work through example
6. Introduce Profitability Index
• look at formula / work through example
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.

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

 INVESTMENT MODELS LESSON Lesson and worksheet. 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.

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