Glossary term
Net present value
Net present value compares discounted cash inflows with discounted cash outflows at a stated discount rate.
Plain meaning
What net present value means
Net present value, often shortened to NPV, translates a series of future cash flows into today's dollars and then nets the positive and negative amounts together.
A positive NPV means the discounted inflows are larger than the discounted outflows under the selected assumptions. A negative NPV means the reverse.
Formula role
How OpenBook uses it
OpenBook calculators use NPV as a comparison output when timing matters. Each cash flow is discounted using the entered discount rate, then the discounted values are added together.
NPV is sensitive to the timing of cash flows and to the discount rate selected by the user.
Common confusion
What NPV does not say by itself
NPV is not a guarantee of outcome. It is a model result based on entered cash flows, timing, and rate assumptions. It also differs from internal rate of return, which solves for a rate rather than a dollar amount.