How Net Present Value Is Implemented

Tom Arnold

Chapter Chapter 1 in A Pragmatic Guide to Real Options, 2014, pp 1-13 from Palgrave Macmillan

Abstract: Abstract When reading corporate finance textbooks, net present value (NPV) emerges as the preferred metric for project valuation under most circumstances. NPV is intuitively appealing because cash outflows (costs) are being compared to cash inflows to determine if one is bigger than the other. More specifically, all of the cash flows (inflows and outflows) are discounted to generate the NPV calculation: NPV equals the sum of discounted cash inflows less the sum of discounted cash outflows (see the appendix to this chapter for a quick tutorial on discounting).

Date: 2014
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DOI: 10.1057/9781137391162_1

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