Net present value (NPV) is an indicator you can use to assess the profitability of an investment project.
For example, a retailer evaluates opening a second location by projecting $120,000 in annual net cash flows over 6 years and applying a 9% discount rate. If the NPV is positive, the expansion is expected to return more than the $200,000 start-up cost — supporting a go-forward decision.
Why it matters: It is the definitive tool for capital budgeting; if NPV is positive, the investment will create wealth; if negative, it destroys wealth.
.avif)
.svg){kind=small}