What is Net Present Value?

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Net Present Value (NPV) is an indicator of how much value an investment or project adds. If the NPV of a prospective project is positive, it should be accepted. However, if NPV is negative, the project should probably be rejected because cash flows will also be negative. NPV compares the value of a dollar today to the value of that same dollar in the future, taking inflation and returns into account.

For NPV calculations we assume a discount rate of 5%. This is the rate used to discount future cash flow to their current value.

For more information, please see http://en.wikipedia.org/wiki/Net_present_value

 

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