NPV versus Other Investment Models

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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