A financial expression, used in Lifetime Value calculations, where the value of future profits is represented by a single number. For example, the Net Present Value of a subscription promotion campaign which generates profits at the following time: Year 1 = (£1,000); Year 2 = £2,000 and Year 3 = £1,000, and with the bank interest rate at 6% is £1,777. This is less than adding together each annual profit figure (£2,000 in this case) because £1 profit generated in the future is worth less than £1 profit generated now.
or "NPV" is a future stream of benefits and costs converted into equivalent values today. This is done by assigning monetary values to the benefits and costs discounting future benefits and costs using appropriate discount rate and subtracting a sum total of discounted costs from the total at discounted benefits.
Determination of current value of buildings and components in today's dollars that reflects a stream of current and future benefits and costs; projected future costs and benefits must be discounted to give a fair value in today's dollars.
NPV of an investment is the sum of all expected future cash flows from the investment, discounted at spot interest rate or riskless rate, less the cost of investment; one of the best tools to evaluate investment decisions. Projects with a positive NPV can be approved while projects with a negative NPV will not be recommended.
The present value of future cash flows of an investment project, less the present value of the investment's cash flows, where discounted at the cost of capital; a measure of the enhancement of shareholders' wealth arising from investment decisions.
The future stream of benefits and costs converted into equivalent values today. This is done by assigning monetary values to benefits and costs, discounting future benefits and costs using an appropriate discount rate, and subtracting the sum total of discounted costs from the sum total of discounted benefits. [GAO
A measure of a project's future value in current dollars. Future income and expenses are summed and then discounted using a required rate of return to adjust for the time value of money. Net present value is, theoretically, the best method for evaluating projects.
Total discounted revenue (referred to as “present value of revenues”) less total discounted costs (referred to as “present value of costs”). This method is one of the better financial measures of an investment. The higher the net present value, the more desirable the investment from an economic standpoint. A negative net present value represents the fact that costs were higher than revenue and the investment may not seem desirable in an economic sense.
A calculation of the present value of expected future cash flows (considering the time value of money) less the associated cost of those cash flows. More simply, the total net profit (or loss) expected over the life of an investment.
(Also known as NPV.) The cost of a product or system calculated in the present-day currency. Relex Life Cycle Cost (LCC) enables NPV calculations, to determine if a particular cost would be better incurred in the present year, or at a future date when costs may be lower.
Net present value (NPV) analyses are used to compare investment alternatives that occur over multiple years. Present Value requires that all quantifiable benefits and costs are brought back to current day dollar values, so that various alternatives can be compared directly.
The amount of money which would need to be invested at a commercial interest rate at the beginning of the period of debt repayments such that, with accumulated interest, it would be just adequate to meet all the payments as they fall due.
This is a common financial concept, and a critical component of Minnesota's C-BED tariff, which basically reflects the idea that having a given amount of money today is more valuable than receiving the same amount of money in the future. C-BED requires utilities to determine the net present value of their rate schedule using the standard discount factor that they apply to their other business decisions. That means calculating the expected payments over the life of the contract and applying the discount to find the net present value of the series of payments. The net present value is then divided by the total energy produced over the 20 years, resulting in the “net present value rate” – the present value of every kilowatt-hour the project will produce over its lifetime. C-BED requires that the utility establish a tariff that provides for a rate schedule resulting in a net present value rate of up to 2.7 cents per kilowatt-hour.
An investment evaluation method in which all cash outflows and inflows during the life of the investment are discounted with a discount rate (usually a required rate of return or the current market rate for a similar investment of the same duration).
This is a measure of the overall value of a stream of payments over time. The NPV represents the amount that would need to be invested at a commercial interest rate at the beginning of the payment period, such that, with accumulated interest, it would be adequate to meet all payments as they became due.
The present value of an investment's projected income less the present value of the investment's projected expenses. The net present value also takes into account estimated proceeds from a future sale. For more information, see the "Real Estate Investment Analysis Tools" article in the "Real Estate Investing" section.
is a method used in evaluating investments, whereby the net present value of all cash outflows (such as the cost of the investment) and cash inflows (returns) is calculated using a given discount rate, usually REQUIRED RATE OF RETURN. An investment is acceptable if the NPV is positive. In capital budgeting, the discount rate used is called the HURDLE RATE and is usually equal to the INCREMENTAL COST OF CAPITAL.
The difference between the present value of capital outlays and the present value of all future cash flow benefits. If positive, it reflects a return on capital; if negative, not all capital has been returned. It is expressed as a dollar amount.
The difference between the present value of the expected cash inflows from an investment and the amount of the investment outlay; an investment is acceptable if the net present value is equal to or greater than zero.
The difference between the present value of the benefit stream and the present value of the cost stream for a project. The net present value calculated at the Banks discount rate should be greater than zero for a project to be acceptable.
The discounted present value of all revenues associated with an investment minus the discounted present value of all costs. Investments with an NPV equal to or greater than 0 are economically feasible at the investor's discount rate. Also see “Benefit/cost ratio,” “Equal annual equivalent,” and “Internal rate of return.
An approach used in capital budgeting where the present value of cash inflow is subtracted from the present value of cash outflows. NPV compares the value of a dollar today versus the value of that same dollar in the future after taking inflation and return into account.
A method of capital outlay analysis that compares a required investment amount with the present value of resulting net future cash flows discounted at the minimum desired rate of return; a project's net contribution to wealth â€“ present value minus initial investment.
An appraisal method for a lessee when assessing the merits of lease versus cash. The NPV is equal to the present value of a future stream of payments minus the present value of the cost of the investment.
The value of a personal portfolio, product, or investment after depreciation and interest on debt capital are subtracted from operating income. It can also be thought of as the equivalent worth of all cash flows relative to a base point called the present.
Method used in comparably evaluating investments in very dissimilar projects by discounting the current and projected future cash inflows and outflows back to the present value based on the discount rate, or cost of capital, of the firm.
The value today of an asset to be received in the future, either as a single payment or a series of payments (such as an annuity). The value is considered to be different if received at a later date because of the time value of money.
Net present value usually is employed to evaluate the relative merits of two or more investment alternatives. It is calculated as the sum of the total present value of incremental future cash flows plus the present value of estimated proceeds from sale. Whenever the net present value is greater than zero, an investment opportunity generally is considered to have merit.
Refers to a method used in evaluating investments in which the net present value (NPV) of all cash outflows and cash inflows is calculated using a given discount rate, usually the required rate of return. If the NPV is positive, the investment is acceptable. In capital budgeting, the discount rate used is known as the hurdle rate and this rate is usually equal to the incremental cost of capital.
Net present value (NPV) is a standard method for financial evaluation of long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met.