What is Net Present Value?

 

• Net present value is the difference between an investment’s market value (in today’s dollars) and its cost (also in today’s dollars).
  
• Net present value is a measure of how much value (in dollars) is created by undertaking this investment
• An investment should be accepted if the NPV is positive and rejected if it is negative.
• Estimation of the future cash flows and the discount rate are important in the calculation of the NPV