Net Present Value (NPV)
The Most Widely Used Capital Budgeting Technique
Net Present Value compares the present value of expected future cash inflows with the initial investment. A positive NPV indicates that the project is expected to increase shareholder wealth.
Tip
When comparing mutually exclusive projects, the project with the highest positive NPV is generally preferred.
Summary
NPV directly measures the value added by an investment after considering the time value of money.