A capital budgeting method that calculates the difference between the present value of cash inflows and outflows over a project's lifetime, discounted at a required rate of return. A positive NPV indicates that a project will add value to the company.
The concept emerged from 19th-century actuarial science and gained prominence in corporate finance during the mid-20th century. It was formalized by economists like Irving Fisher and became standard in investment analysis. The term reflects the 'net' difference after accounting for the time value of money.
NPV is like having a financial time machine that brings all future cash flows back to today's dollars, then asking 'is this investment worth more than what we're paying for it right now?' It's the ultimate reality check for any investment because a dollar tomorrow is worth less than a dollar today!
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