The present value of all future costs and revenues for a given prospective
expenditure. In essence, future costs and revenues are adjusted by using a calculation
that estimates today's value -- or net benefit -- over the lifetime
of a particular product or other longer-term investments. NPV enables decision
makers to compare various alternatives on a similar time scale by converting
all options to current dollar figures. An investment is deemed acceptable if
the net present value is positive over the expected lifetime of the product. Normally,
investments with a higher net present value are preferable to those with a lower
net present value. |