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Investment Appraisal - Lesson Plan: 2 x 1 hour lessons

A series of 'off the shelf' lesson plans and resources for use in the classroom. These lessons deal with Investment Appraisal and are relevant to the following specifications:

  • AQA: Module 4
  • Edexcel: Unit 4, Section 7
  • OCR: Module 2875

Aim:

This Activity offers students the opportunity to use different methods of investment appraisal to make business decisions, and also to develop higher order skills through having to consider other factors, apart from quantitative methods, that a business might have to consider in making business decisions.

The Activity provides a scenario where a firm has to invest in a new machine. There are different options and the student is asked to use appropriate appraisal methods to identify which machine to choose. Two of the machines cost the same and have the same yield after 5 years but the cash flows are different. The other two provided are different in order that the student is directed to using appropriate methods.

Learning Objectives:

At the end of these lessons, students should:

  • Be confident in using at least two different investment appraisal methods
  • Appreciate the limitations and advantages of the use of such methods
  • Understand that other factors will influence decision making in a business
  • Be able to present a coherent, well supported argument

Resources:

Lesson Structure:

The lesson structure can be amended by educators to suit - a set of questions guiding students can be devised or the more open ended research/investigation based approach as suggested below can be used.

Lesson 1

  1. Begin the lesson with a discussion on the nature of capital and the meaning of the term 'investment'. (The aim is to clarify any confusion that might exist with 'investment' in the financial sense, i.e. saving, stocks, shares, banks, etc!) (10 minutes)
  2. Extend the discussion to focus on why a firm wishes to invest in capital equipment and the issues surrounding decision making in such an investment - interest rates, different approaches, staffing implications, estimated sales, initial costs, sources of finance, earnings over the lifetime of the machine, depreciation, etc. The Mind Map can be used as a means of jogging memories or giving clues. (15 minutes)
  3. Use the Presentation to go through the main methods of investment appraisal - the students can be involved in the process by calculating relevant sections and offering suggested answers. Educators can edit the slides to ensure the Presentation is 'revealed' as appropriate. (30 minutes)
  4. Review the main points of the lesson. (5 minutes)

Lesson 2

  1. Outline the main points from the last lesson. (5 minutes)
  2. Go over the aims and purpose of the Activity with the students. Outline the task and the timing for the task (depending on the method used). Set students onto the task. (45 minutes)
  3. Get feedback. (10 minutes)

If the students need more time, or if the educator wishes to get students to make a more formal presentation, a subsequent lesson can be used and the timings for the second lesson amended as appropriate.