The Net Present Value, commonly referred to as NPV, is a capital budgeting tool used in corporate finance to help firms assess the financial feasibility of various capital expenditures. Based largely on the time value of money, NPV compares the value of the initial investment to the cash flow generated from that investment over a number of years. An NPV greater than 0 suggests the project is acceptable, while an NPV less than 0 suggests that the project does not meet the firm's minimum criteria.
In this video you'll learn how to calculate the net present value using a simple example. Although the process is rather simple once you understand the basics, calculating NPV can be rather time consuming. To improve your chances of receiving the correct answer, make sure that you are organized when writing out the calculations as a single number can certainly affect your results.
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