Net Present Value (NPV)
An investment appraisal method that discounts all future cash flows back to their present value using a discount rate, t...
Formula
NPV = Σ (Cash Flow ÷ (1 + r)ⁿ) − Initial Investment
Real World
Amazon uses NPV when deciding whether to build new fulfilment centres — a positive NPV confirms the discounted future revenues exceed the build cost, justifying the investment.
Exam Focus
Always interpret the NPV figure: state whether it is positive or negative and explicitly recommend accept or reject the investment.
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