Investment Evaluation

Learn three methods to evaluate investments and make smarter financial decisions.

Introduction

• Welcome
• Course requirements and structure

1. Investment

• Components of an investment
• Investments and economic capital
• Types of investments
• Opportunity cost
• Time value of money
• Present, future, and terminal values
• Challenge 1: Determine present, future, and terminal values
• Solution 1: Determine present, future, and terminal values
• Real talk: Investments and opportunity costs
• Evaluation methods

2. Discounted Cash Flow (DCF)

• What is DCF?
• Solve for DCF
• Challenge 2: Calculate DCF over 30 years
• Solution 2: Calculate DCF over 30 years
• Pros and cons of DCF
• Real talk: Discounted cash flows

3. Net Present Value (NPV)

• The net present value equation
• NPV using tables
• Challenge 3: Calculate NPV using table values
• Solution 3: Calculate NPV using table values
• A fully worked out example
• NPV using a Microsoft Excel formula
• Challenge 4: Calculate NPV using Microsoft Excel
• Solution 4: Calculate NPV using Microsoft Excel
• Pros and cons of NPV
• Real talk: Net present value

4. Internal Rate of Return (IRR)

• What is IRR?
• IRR calculation the long way
• The case of no IRR
• The case of multiple IRRs
• IRR using the Microsoft Excel formula
• Challenge 5: Calculate NPV and IRR
• Solution 5: Calculate NPV and IRR
• Pros and cons of IRR
• Payback period
• Payback period in Microsoft Excel
• Challenge 6: Choose a project based on NPV, IRR, and payback period
• Solution 6: Choose a project based on NPV, IRR, and payback period
• Real talk: IRR and payback period

Conclusion

• Next steps