Common
Net present value
Valuation in finance
Net present value
Net present value (NPV), also known as net present worth (NPW) is a method for assessing whether future amounts of money are worth more or less than the cost of an investment made today. It is widely used in finance, economics, and project evaluation to judge whether a planned activity is expected to create value. NPV works by converting future cash flows into their “present value,” recognising that money available now is more valuable than the same amount received later. This adjustment reflects factors such as interest rates, inflation, and the opportunity to use money for other purposes. An investment typically has a positive NPV when the present value of its expected future benefits exceeds its initial cost, indicating that it is likely to be financially worthwhile. A negative NPV suggests the opposite. Because it summarises expected gains and losses in a single figure, NPV is a central tool for comparing alternative projects and making informed financial and economic decisions. Net...
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