What is NPV ?

Question

What is NPV ?

Accepted Answer

NPV stands for Net Present Value, which is a financial metric used to determine the current value of future cash flows.

NPV is calculated by subtracting the initial investment from the present value of expected future cash flows.
It helps in determining whether a project or investment is profitable or not.
A positive NPV indicates that the investment is profitable, while a negative NPV indicates that it is not.
NPV takes into account the time value of money, which means that future cash flows are discounted to their present value.
For example, if a project requires an initial investment of $100,000 and is expected to generate cash flows of $30,000 per year for the next five years, with a discount rate of 10%, the NPV would be $4,877. This means that the project is profitable and worth pursuing.

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