What does NPV stand for in project evaluation?

Net Present Value (NPV) is a key financial metric used in project evaluation to assess the profitability of an investment or project over time. It represents the difference between the present value of cash inflows generated by the project and the present value of cash outflows associated with that project. By discounting future cash flows to their present value, NPV accounts for the time value of money, indicating how much a project is worth in today's terms.

Using NPV, investors and decision-makers can determine whether to proceed with a project. A positive NPV suggests that the project is expected to generate more cash than what is being expended, making it an attractive investment opportunity. Conversely, a negative NPV indicates that the project would likely result in a net loss, signaling that resources may be better allocated elsewhere. This makes NPV an essential tool in capital budgeting and financial decision-making processes.