Dev vs Mara: buy the oven?

• Copperpot can buy a $120,000 oven for a new wholesale line.
• Dev: "pays back in ~3.5 years — over my three-year rule — so no."
• Mara: "your rule ignores the best year. Count it all first."
• *Presenter note:* Take three quick votes before any numbers go up.

The numbers everyone's arguing over

• Cost $120,000 up front; cash back $30k, $30k, $35k, $40k, $45k over five years.
• Total cash $180,000 → looks like a $60,000 "profit." Hold that number.
• Cost of capital: 10%.

Test 1: payback (how fast does the money come back?)

• Running total: 30 → 60 → 95 → 135 (thousands). Hits $120k partway through Year 4.
• Payback ≈ 3.6 years — fails Dev's three-year rule.
• *Presenter note:* Ask what payback stopped counting. Answer: Year 5's $45k, and the wait.

A dollar later is worth less than a dollar today

• Discount = shrink future cash for the wait, using Copperpot's 10% cost of capital.
• Year 5's $45,000 × 0.621 = $27,945 in today's money.
• *Presenter note:* This shrinkage is exactly what payback ignored.

Test 2: NPV (is the whole deal worth it?)

• Add all five present values = $133,600; subtract the $120,000 cost.
• NPV = +$13,600. Positive → the oven creates value.
• *Presenter note:* Point out the $60,000 "profit" shrank to $13,600 once the wait is priced in.

Your task

• Compute payback, compute NPV (factors are printed), then make the call.
• One sentence: which test you trusted, why, and what the other choice would cost.
• *Presenter note:* Groups of 3–5. Hand out the worksheet now.

The defensible call: invest

• NPV is +$13,600 at 10% — a value test says yes.
• Payback's "no" was a speed test that threw away the biggest year.
• Cost of Dev's "no": a value-creating project and a wholesale line, turned away.

When the tests disagree, follow the value test

• Payback = how fast my cash returns. NPV = whether the deal is worth it.
• Takeaway: for an invest call, count the whole stream and follow the NPV — and say what
• your call would cost if you're wrong.