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What is Net Present Value?

 , updated on July 02, 2017
Net present value is the sum of the present values of future outgoing and incoming cash flows for a period of time. It is a way to evaluate strategies and investments that considers the time value of money.
Overview: Net Present Value
FunctionFinancial Management
Management Accounting
DefinitionThe sum of future cash flows for an investment discounted to their present value.
ExampleAn investor is considering building a rental property. In order to understand the investment they calculate a present value of cash flows that includes future rent and future costs such as land acquisition, construction, financing, insurance, maintenance and taxes.
ValueComparing investments and evaluating business strategies.
Related TechniquesCost Benefit Analysis
Rate Of Return

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