![]() ![]() These three possibilities of net present value are briefly explained below: Positive NPV: Net present value is the difference between the present value of cash inflows and the present value of cash outflows that occur as a result of undertaking an investment project. It uses net present value of the investment project as the base to accept or reject a proposed investment in projects like purchase of new equipment, purchase of inventory, expansion or addition of existing plant assets and the installation of new plants etc.įirst, I would explain what is net present value and then how it is used to analyze investment projects. ![]() Net present value method (also known as discounted cash flow method) is a popular capital budgeting technique that takes into account the time value of money.
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