Term Definition: net present value (NPV) |
Main Description
The present value of all future costs and revenues for a given prospective expenditure. In essence, future costs and revenues are adjusted by using a calculation that estimates today's value -- or net benefit -- over the lifetime of a particular product or other longer-term investments. NPV enables decision makers to compare various alternatives on a similar time scale by converting all options to current dollar figures. An investment is deemed acceptable if the net present value is positive over the expected lifetime of the product. Normally, investments with a higher net present value are preferable to those with a lower net present value.
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