What is net present value

 

The net present value (NPV), is the sum of all future cashflows (positive or negative) during the investment's entire life. It can be discounted to the current. The NPV analysis is an intrinsic valuation that is widely used in finance, accounting, and other fields for determining the business's value, investment security, new venture, cost-reduction program and cash flows over the entire life of an investment.

NPV analysis can be used to determine the value of an investment, project or series of cash flows. It's a comprehensive metric that takes into account all revenue , expenses and capital costs associated to an investment in its free cash flow (FCF).

It takes into consideration all revenues and costs. However, it also considers the timing of cash flows that could have a significant impact on an investment's present value. It is better to have cash inflows and cash outflows earlier than the reverse.

 

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