Net Present Value

Abbreviated as NPV, Net Present Value measures the excess or shortfall of cash flows, in present value terms, of all the expected future cash flows from an investment and the amount of the initial investment at cash flow zero (present time). A NPV of zero means the project will repay the original investment plus the required rate of return. A positive NPV means the project will repay in excess of the original investment plus the required rate of return while a negative NPV means a project will not deliver the required rate of return to make a project feasible. NPV along with Internal Rate of Return (IRR) are the two-discounted cash flow (DCF) techniques used where the time value of money is a factor when valuing long-term projects.