Method for financial evaluation of long-term projects. Also described as Present Value of Cash inflow / benefits my Present Value of Cash Outflow / Costs.
NPV compares the value of the future cash flows of the project to today's dollars using time value of money techniques.
It evaluates the cash inflows using the discounted cash flow technique, which is applied to each period the inflows are expected. The total present value of the cash flows is deducted from the initial investment to determine NPV.
NPV assumes that cash inflows are reinvested at the cost of capital.
NPV is similar to discounted cash flow.
Positive NPV is good.
Negative NPV is bad.
The project with the higher NPV is the "Better" project.
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