Net Present Value

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Net present value is used to evaluate projects that involve an initial outlay of cash and positive cash flows in the future. The future cash flows are discounted by the required rate of return on the project. The discounted values are then summed and the initial outlay is subtracted to obtain the net present value. The initial outlay is represented in red and the discounted cashflows are represented in light blue next to the darker blue undiscounted cash flows.

Contributed by: Fiona Maclachlan (March 2011)
Open content licensed under CC BY-NC-SA


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