Net Present Value (NPV)
Net Present Value (NPV) is the difference between the present value of cash inflows and outflows over a period of time. It is used to evaluate the profitability of an investment or project by discounting future cash flows to their present value. A positive NPV indicates that the projected earnings exceed the costs, making the investment worthwhile. NPV is a fundamental concept in finance, crucial for capital budgeting and investment analysis.
Key Takeaways
- Difference between present value of cash inflows and outflows.
- Used to evaluate investment profitability.
- Positive NPV indicates a profitable investment.
- Essential for capital budgeting and analysis.
