What Is Net Present Value (NPV)?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

Net Present Value (NPV) is a financial accounting term used to determine the value of money in the future at a value today. Money at some point in the future is usually worth less than money in the present so a discount rate has to be applied (usually a risk-free interest rate). More specifically, NPV is the difference between the present value of future cashflows and outflows, and is used to determine the profitability of an investment. If the NPV is positive, the project is worth undertaking and vice versa.

Net Present Value is calculated by summing the cash flow divided by the interest rate in every future year, and then subtracting the initial expenditure.

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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.