Definition: What is Net Present Value (NPV)?
Net present value (NPV) is the capital budgeting formula that is used to calculate the difference between the present value of cash inflows and outflows of the project or potential investment.
It is an important concept because it demonstrates that due to interest and opportunity cost the money is not free and today worth of 1 dollar money is more than the worth of 1 dollar tomorrow.
At the time of investment making decision most sophisticated investors and management of the company use the present value analysis.
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