Net Present Value Calculation Lesson Plan, Calculating NPV formula, Teaching Math Worksheet

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

Suggested Grades:

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

NET PRESENT VALUE LESSON PLAN

Teaching Materials

Lesson - Net Present Value Calculation (see below for printable lesson)
Overhead
Many pre-calculated interest examples

Lesson Activity

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

Talk about the terms
I = cost
0th term
n=0 , means no cash flow

Work through examples
- Go through the steps carefully
- Talk about positive versus negative NPV
Discuss accuracy of NPV
- Only as good as the assumptions you make
Discuss arbitrage
- Why it doesn’t work in efficient markets
Talk about PV tables
- Distribute tables
- Work through example using table

Lesson Printable Materials - Worksheets

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

NET PRESENT VALUE CALCULATION LESSON
	Net Present Value Calculation Lesson and Worksheet Lesson and worksheet.

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