Definition of net present value NPV

One way of calculating the potential return from an investment. This is basically the current value of the investment plus the present value of future cash flows, minus the initial cost of the investment plus the present value of any future costs. Present value is calculated by applying an appropriate discount rate to the expected future returns and costs. The discount rate used is the investment's cost of capital, and normally equates to the required rate of return. If NPV is positive, this implies that the expected return is higher than the required return, and one should proceed with the investment.

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