Net present value
The net present value (NPV) of a project is the sum of its discounted annual cash flows including those involved in its initial investment. Its net present expected value (NPEV) is the sum of the net present values of the alternative outcomes of the project after weighting each by its probability of occurrence. The formulae used to calculate NPV and NPEV are set out on the tutorials subpage.
Calculations of NPV or NPEV 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. The subject of risk-limitation in investment decisions is discussed in the article on financial economics