What is Net Present Value?
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project. NPV is the result of calculations used to find today’s value of a future stream of payments. — Investopedia
How do I use this?
And thus we see here: if NPV > 0, the investment would add value to the firm. The project undertaking may be accepted.
The Self-Help question for NPV is:
Will this project/action/direction/task add value to long term self?
The importance of NPV
He was working as an actor and waiter when a professor in an accounting class helped direct him to a position at Hewitt Associates, an HR company. There, Bock discovered at a meeting with a client that a Hewitt partner didn’t know what NPV (net present value) meant. When Bock asked around, the only people who could define the term had MBAs. The disconnect between the business and HR personnel bothered him.
“That’s when I realized I needed an MBA,” he says. “NPV is a fundamental economic concept. Are you going to make money or are you going to lose money?” — Lazslo Bock