What Is Net Present Value (NPV)? And how can it be used?

The variation between the present value of the cash inflows and outflows over a period of time is called net present value. This index is used in investment planning in order to determine whether the projected investment is profitable or not. Based on the picture below, NPV is calculated. After calculation, if the NPV was positive, it means that in the future, the investment is more likely to be profitable rather than making you lose your money. So, investing in the project would be attractive. NPV can also be used as a comparative tool to analyze the alternatives. However, the fact is, NPV is only as good as your assumptions. Therefore, sometimes it might be unreliable!

What Is Net Present Value (NPV)? And how can it be used?