Corporate FinanceFinancial Glossary
NPV (Net Present Value)
Definition
The difference between the present value of all future cash inflows and the present value of all cash outflows associated with a project or investment. NPV is calculated by discounting each future cash flow back to the present using an appropriate discount rate (typically the cost of capital or WACC).
Why It Matters
A positive NPV means the project creates value — it earns more than the cost of capital. A negative NPV destroys value. In capital budgeting, companies should accept all projects with positive NPV. For personal finance, NPV helps you evaluate whether a real estate investment or business opportunity justifies its upfront cost.