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Net Present Value

Net Present Value is the difference between the present value of cash inflows and the present values of cash outflows. It is used in capital budgeting to analyze the profitability of an investment.

The formula for NPV is,

                                            
    
In other words, NPV compares the value of money today and the value of the same amount of money in the future. If the NPV is positive for a project or investment then we can accept it. If the NPV is negative then rejecting the project would be better.

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