Net present value rule

Net present value rule

An investment is worth making if it has a positive NPV. Projects with negative NPVs should be rejected.

Net Present Value Rule

In investing, a rule stating that one should only make an investment if the net present value of its return is positive. That is, an investment only results in a profit for the investor if the discounted value of future cash flows is more than the amount one invests.
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Starting with the net present value rule, the author highlights the relevance of project cash flows, time value of money as well as project risk and presents the internal rate of return as well as profitability index models as variations of the same theme.