NET PRESENT VALUE

Net present value (NPV) is a method for selecting an alternative that offers the best investment. It accounts for the time value of money, as well as identifies which alternative provides a rate of return greater than that provided by a financial institution. If the resulting calculation is greater than that earned at a bank, then it is okay to make the investment.

The advantages of NPV are twofold. It provides the financial basis for deciding whether to make an investment. It also is a widely accepted method for making financial investments.

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