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Net Present Value

Net Present Value is the net amount of a project's cash flows, after discounting at the appropriate cost of capital, i.e. after allowing for the time value of money.

Net Present Value is often abbreviated to NPV.

Consider the following question.

Would you rather have £100 now or £100 in a year's time?

The answer to this question is "Now" as you could invest the £100 making it worth more, or pay off a debt thus saving interest.

If, instead, the offer had been £110 in a year's time you might have had a few more doubts.

You accept the money now if you can use it during the coming year to make or save your self at least 10%. So, given that you can make 10%, £110 in one year's time is worth the same as £100 now.

This concept is covered fully in the Intellexis Investment Appraisal set of courses. Please contact us via the information request form or call +44 (0)20 7371 4444 for more information.