Net present value (NPV)

Principles of Finance Glossary

The present value of a project's expected incremental free cash flows minus the initial investment, discounted at a risk-appropriate rate: NPV = -C_0 + sum_t=1^n CF_t / (1+r)^t. Decision rule: accept if NPV > 0. The gold-standard capital-budgeting metric because it measures absolute wealth creation.

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