Net Present Value
Definition
Sum of discounted future cash flows minus initial cost. Positive NPV means an investment is worth doing.
Example
A project costing $1M today with $300K/year for 5 years and a 10% discount rate has NPV ≈ $137K.
Sum of discounted future cash flows minus initial cost. Positive NPV means an investment is worth doing.
A project costing $1M today with $300K/year for 5 years and a 10% discount rate has NPV ≈ $137K.