What does NPV stand for in finance?

Net Present Value (NPV) is a core concept in finance and investment analysis that represents the difference between the present value of cash inflows and the present value of cash outflows over a specific period. It is a method used to assess the profitability and viability of an investment.

When calculating NPV, future cash flows are discounted back to their present value using a specific discount rate, typically reflecting the cost of capital or the required rate of return. A positive NPV indicates that the projected earnings from an investment exceed the anticipated costs, making it a desirable investment opportunity. Conversely, a negative NPV suggests that the costs outweigh the revenues, indicating that the investment may not be worthwhile.

The other potential answers do not accurately represent the financial calculation commonly referred to as NPV. Understanding and applying this concept is essential for making informed financial and investment decisions.