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Students learn how to use NPV and related formulas.

 
 

Using NPV to make Investment Decisions

Objectives

  • Understand how to decide which items to include in the cash flow analysis after tax corporate cash flow
  • Understand how to choose among alternate projects
  • Understand how to utilize limited capital, management time, and other scarce resources
  • Understand and define opportunity cost

Suggested Grades:

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

 

 
 

USING NPV LESSON PLAN

 

Teaching Materials

  • Lesson - Using NPV to make Investment Decisions (see below for printable lesson)

  • Overhead

  • Many pre-calculated interest examples

 

Lesson Activity

  1. Two applications for NPV
    • cash flow analysis
    • investment decisions
    • discuss the subjectivity
  2. Discuss difference between cash flow and accounting earnings
    • ask class how they would determine the costs of an investment
    • discuss the 4 items (purchases, additional expense, revenue from sale of existing, and taxes)
    • go through examples
  3. Introduce concept of incremental cash flow
    • Discuss the impact of net earnings and tax benefit
    • Look at formula and work through example
  4. Introduce concept of equivalent annual cost
    • Why is this used?
    • Look at formula and work through example
  5. Discuss miscellaneous factors that affect investment decisions
    • Ask class for examples
  6. Introduce opportunity cost
    • Ask class for definition and examples
    • Look at real life situation and factors for calculating opportunity cost
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:

 

NPV INVESTMENT LESSON

Using NPV to make Investment Decisions Lesson and Worksheet

Lesson and worksheet.

 

 

 

 

 

 

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