NPV (Net Present Value) Test

The Net Present Value (NPV) test is a financial evaluation that determines whether a project or investment is worthwhile. It calculates the difference between the money expected to be received in the future (cash inflows) and the money spent today (cash outflows), adjusting each for the time value of money using a discount rate. If the NPV is positive, it indicates the project is likely profitable and worth pursuing; if negative, it's probably not. Essentially, the NPV test helps to assess if the potential returns outweigh the costs, considering the value of money over time.