Net present value
Certified Financial Planner glossary · Certified Financial Planner
Definition
The sum of discounted cash inflows and outflows at a stated discount rate. Positive NPV adds value at that rate.
Net present value in plain English
Two projects both look profitable, and the stem asks which one adds more value at a given hurdle rate. Net present value sums discounted cash inflows and outflows at that stated discount rate; a positive NPV adds value at the rate used. Ranking by IRR when the question asked for NPV is an ignored-constraint miss, even if the IRR math is tidy. Use the discount rate the stem gave, then compare dollar NPVs rather than chasing the flashier percentage.
Related Certified Financial Planner terms
Certified Financial Planner practice questions · Certified Financial Planner flashcards · Certified Financial Planner study guide