- net present value
- = NPVA method of capital budgeting in which the value of an investment is calculated as the total present value of all cash inflows, cash outflows minus the cost of the initial investment. If the net present value is positive the investment should be considered. A negative net present value indicates that the investment should be rejected. See also discounted cash flow.ExampleA company is considering the purchase of a new computer system, which is expected to save £100,000 in cash operating costs each year. Its estimated useful life (how long it will last) is five years, at the end of which it will have no net residual value.The cash flows for the project are as follows. A simple analysis shows that the savings over five years are £500,000 (5 × £100,000) and the cost is £390,000, which gives a surplus of £110,000 (£500,000 – £390,000). However, such an analysis ignores the time value of money: £1 received in the future is not equal to £1 received today. To calculate the present value of future cash flows it is necessary to calculate the discount factor.Assuming that the cost of capital for the project is 8%, the discount factor is calculated as follows:(An alternative to calculating the discount factor in this way is the use of present value tables or spreadsheet routines.)The net present value can then be calculated:In this case, the net present value is positive and therefore it could be argued that managers should buy the new computer system. However, £9300 is quite a small amount and managers may not be confident that the savings will be the supposed £100,000 a year. Also, the new computer system may not last five years. The net present value calculation is very important as it highlights that this is a marginal decision.

*Accounting dictionary.
2014.*

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**net present value**— (NPV). The value of future cash flows, discounted to today s value. Practical Law Dictionary. Glossary of UK, US and international legal terms. www.practicallaw.com. 2010 … Law dictionary**Net present value**— In finance, the net present value (NPV) or net present worth (NPW)[1] of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows of the same entity. In the case when… … Wikipedia**net present value**— ( NPV) The present value of the expected future cash flows minus the cost. Bloomberg Financial Dictionary * * * net present value net present value ➔ value1 * * * ► See Present Value. * * * … Financial and business terms**net present value**— NPV A method of capital budgeting in which the value of an investment is calculated as the total present value of all cash inflows and cash outflows minus the cost of the initial investment. If the net present value is positive the investment… … Big dictionary of business and management**Net Present Value**— Die Artikel Kapitalwert und Discounted Cash Flow überschneiden sich thematisch. Hilf mit, die Artikel besser voneinander abzugrenzen oder zu vereinigen. Beteilige dich dazu an der Diskussion über diese Überschneidungen. Bitte entferne diesen… … Deutsch Wikipedia**net present value**— grynoji dabartinė vertė statusas T sritis turto vertinimas apibrėžtis Būsimų įplaukų vertė tam tikrą dieną atėmus visas išmokėtas sumas (įskaitant investicijų objekto įsigijimo sąnaudas), apskaičiuota taikant tinkamą diskonto normą. atitikmenys:… … Lithuanian dictionary (lietuvių žodynas)**net present value**— NPV The value of an investment derived from comparisons of costs with the present value of anticipated future, incremental *cash flows. The *present value of cash flows is calculated by applying an appropriate *cost of capital rate to each… … Auditor's dictionary**net present value**— (NPV) The present value of the stream of net cash flows resulting from a project, discounted at the firm s cost of capital, minus the project s net investment. It is used to evaluate, rank, and select from among various investment projects … Black's law dictionary**net present value**— (NPV) The present value of the stream of net cash flows resulting from a project, discounted at the firm s cost of capital, minus the project s net investment. It is used to evaluate, rank, and select from among various investment projects … Black's law dictionary**net present value**— noun The present value of a project or an investment decision determined by summing the discounted incoming and outgoing future cash flows resulting from the decision … Wiktionary