Management Glossary

  Search Results: net present value
net present value

A measure (abbreviated as NPV) that takes into account the time value of money, i.e. the concept that money spent or earned today is worth more than money spent or earned tomorrow. For example if in investment pays you $100 today, you could can then invest that return to earn more money than you would if the original investment did not pay you for a year. The formula for calculating NPV is:

NPV = Sum over the life of an investment ( ct  

)
(1 + i)t  

Where:
c = the net cash flow (inflows minus outflows) in time period numbert.
i = the interest rate used to discount money over for each time period (months, quarters or years depending on how precisely you wish to calculate NPV)

Contributed by: ManagerWise Staff
See: internal rate of return

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