Net Present Value (NPV) is defined as?

Net Present Value (NPV) is a financial metric used to evaluate the profitability of a project or investment. It is specifically defined as the difference between the present value of cash inflows and the present value of cash outflows over a specific period. This allows project managers and investors to determine whether a project is expected to generate more cash than it costs, taking into account the time value of money.

In essence, NPV considers the potential earnings from a project and discounts them back to their present value, enabling decision-makers to compare the value of future cash flows to the initial investment made. If the NPV is positive, it suggests that the project is likely to be profitable and is worth pursuing; if it is negative, the project could result in a loss.

This understanding of NPV is critical for making informed financial decisions and ensuring that resources are allocated effectively and efficiently in project management.