Net present value: Difference between revisions
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The present value of an investment is the sum of its [[discounting|discounted]] annual cash flows. . It can be expressed as a criterion for an investment project by requiring that the '''[[/Tutorials#net present value|net present value]]''' of its future cash flows, allowing for outflows during of its launch phase, should be positive. The corresponding [[/Tutorials#net present expected value|net present expected value]] is the sum of the net present values of alternative outcomes after weighting each by its probability of occurrence. | The present value of an investment is the sum of its [[discounting|discounted]] annual cash flows. . It can be expressed as a criterion for an investment project by requiring that the '''[[/Tutorials#net present value|net present value]]''' of its future cash flows, allowing for outflows during of its launch phase, should be positive. The corresponding [[/Tutorials#net present expected value|net present expected value]] is the sum of the net present values of alternative outcomes after weighting each by its probability of occurrence. | ||
Calculations of net present value are used for investment decisions by individuals and by companies and for [[cost-benefit analysis]] of proposals involving public goods. The [[discount rate]]s appropriate to those applications are discussed in the article on that subject. | Calculations of net present value are used for investment decisions by individuals and by companies and for [[cost-benefit analysis]] of proposals involving [[public goods]]. The [[discount rate]]s appropriate to those applications are discussed in the article on that subject. | ||
Revision as of 04:18, 10 July 2010
The present value of an investment is the sum of its discounted annual cash flows. . It can be expressed as a criterion for an investment project by requiring that the net present value of its future cash flows, allowing for outflows during of its launch phase, should be positive. The corresponding net present expected value is the sum of the net present values of alternative outcomes after weighting each by its probability of occurrence.
Calculations of net present value are used for investment decisions by individuals and by companies and for cost-benefit analysis of proposals involving public goods. The discount rates appropriate to those applications are discussed in the article on that subject.