npv

Net Present Value (NPV) is a key financial metric used by businesses to evaluate the profitability of an investment. It takes into account the time value of money and helps determine whether an investment will yield positive returns. To calculate NPV, cash inflows and outflows are discounted back to their present value using a discount rate. If the NPV is positive, it indicates that the investment is expected to generate returns higher than the cost of capital. On the other hand, a negative NPV suggests that the investment is not economically feasible. NPV is a fundamental tool in decision-making processes, as it provides a clear indication of the potential profitability of an investment. It also helps businesses prioritize projects based on their expected returns. By understanding NPV, businesses can make informed investment decisions and maximize their returns.