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One of the efficiency metrics of Financial Investment defined , defined as a difference between total DCF and Initial Investment
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\mbox{NPV} = - \mbox{DCFI}_0 -+ \mbox{IDCF}_0 = - \mbox{I}_0 + \sum_{i=1}^n \frac{\mbox{RFCF}_i}{(1+r)^i} = \sum_{i=0}^n \frac{\mbox{RFCF}_i}{(1+r)^i} |
where
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| running number of accounting period (usually 1 year) | ||||||||
| discount rate | ||||||||
| free cash flow generated during the |
The main idea of NPV is that value of cash today is higher than value of cash tomorrow because immediate cash can be invested readily available investment market opportunities and start brining some profit.
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- Investment Projects with negative NPV should be rejected
- Investment Projects with higher NPV should have a financing priority over the projects with lower NPV
See also
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Economics / Investment / Financial Investment / Financial Investment Metrics
[ Profitability Index (PI) ] [ Discounted Cash Flows (DCF) ] [ Internal Rate of Return (IRR) ][ ΔNPV ]
[ Production NPV ]