Investing · Lesson Plan
Net Present Value
Net present value extends present value to whole projects: it’s the value of an investment’s expected future returns minus its cost, all in today’s dollars. This lesson develops NPV = PV − I, substitutes the multi-period present-value formula, and works through examples so students can evaluate whether a project adds value. It’s the core tool of capital budgeting.
For Teachers
Lesson at a glance
- Topic
- Investing
- Grade Level
- Grades 11–12 / College
- Resource Type
- Lesson + Worksheet
- Estimated Time
- 45–60 minutes
- Format
- Lesson + worked examples
- Materials
- Printable lesson, worked examples, calculator
What Students Learn
Learning objectives
- Define net present value
- Derive NPV = PV – I from the present-value formula
- Discount multi-period cash flows to today’s dollars
- Evaluate whether a project has a positive NPV
- Explain why positive-NPV projects add value
Materials
What you’ll need
- Printed lesson with worked examples (one per student)
- Calculator
- Scratch paper
- Whiteboard
Key Terms
Vocabulary
- Net present value (NPV)
- The present value of returns minus the cost of the investment.
- Present value (PV)
- Future cash flows expressed in today’s dollars.
- Cost of investment (I)
- What the project requires up front.
- Cash flow
- Money received in a given future period.
- Discounting
- Converting a future amount to its present value.
- Capital budgeting
- Deciding which long-term projects to fund.
For Teachers
Lesson plan
Estimated time: one 45–60 minute class period.
Lesson sequence
- Review (8 min). Recap present value from the prior lesson.
- Build NPV (15 min). Develop NPV = PV − I and substitute the multi-period PV formula.
- Worked examples (17 min). Discount each year’s cash flow and net out the cost.
- Decision rule (8 min). Positive NPV adds value; negative NPV destroys it.
Assessment
Assess the worked problems for correct discounting and a correct invest/reject decision.
Discussion
Discussion questions
- What is net present value?
- How is NPV built from present value?
- Why must each year’s cash flow be discounted separately?
- What does a positive NPV tell you about a project?
- Why is NPV central to capital budgeting?
Printable Lesson & Worked Examples
Net Present Value — Lesson & Worked Examples
A printable financial-math lesson developing the net-present-value formula from present value, with worked multi-period examples and the NPV decision rule.
Unlock the full Money Instructor library
Members get unlimited access to worksheets, lesson plans, and teacher resources across every financial literacy topic — budgeting, taxes, credit, banking, and more.
More Investing resources
Browse all Investing resources →
Using NPV for Investment Decisions
Students apply NPV to capital-budgeting decisions — initial cost, incremental cash flow, depreciation tax benefits, and equivalent annual cost — with detailed worked examples.
Lesson · Grades 7–12NPV vs. Other Investment Models
Students compare NPV with payback period and IRR for evaluating investments, and rank competing projects with worked examples.
Lesson · Grades 7–12Modern Portfolio Theory
Students learn Markowitz's portfolio theory — expected return, risk, and how diversification builds an efficient portfolio.
Lesson · Grades 7–12Printables & worksheet tools