**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 | ||

Function | ||

Definition | The sum of future cash flows for an investment discounted to their present value. | |

Example | An 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. | |

Value | Comparing investments and evaluating business strategies. | |

Related Techniques | Cost Benefit AnalysisRate Of Return |