The present value of each cash flow over the course of the project is used to determine net present value, or NPV. Following that, the initial investment in the investment is reduced by the present value of the cash flows.
The net present value rule states that business executives and investors should only fund initiatives or conduct deals that have a net present value that is in their favor (NPV). A negative net present value project should not be one in which they invest.
All of your anticipated returns will be valued at that amount in the present. To determine the NPV, you first take that amount and remove your initial investment from it. The project will not be successful if the NPV is negative.
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