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See: Net present value
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
Net Present Value
A measure of discounted cash inflow to present cash outflow to determine whether a prospective investment will be profitable. For example, if a dentist wishes to purchase a new dental practice, he may calculate the net present value over a number of years to see if he will recover his investment in a reasonable period of time. If the ask price for the dental practice is $500,000, this is the present cash outflow used in the calculation. If the discounted cash inflow over, say, two years, is greater than or equal to $500,000, then the investment will likely be profitable. See also: Present value.
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