Net Present Value

Net Present Value (NPV) is a financial metric used to evaluate the profitability of a project or investment. It calculates the value of future cash flows—money that will be received in the future—by discounting them back to their current value. This discounting takes into account the time value of money, meaning a dollar today is worth more than a dollar in the future due to factors like inflation and investment opportunities. A positive NPV indicates that the projected earnings exceed the costs, making the investment worthwhile, while a negative NPV suggests it may not be a good choice.