NPV (Net Present Value)

NPV takes every future cash flow a decision produces - money spent and money received, at whatever future dates they occur - converts each one to its Present Value, and adds them all up. A positive NPV means the decision is expected to be worth more, in today's rupees, than it costs; a negative NPV means the opposite. It's commonly used to evaluate business investments and large purchase decisions, but the same logic applies to any choice involving cash flows spread across time. NPV and IRR are closely related tools for the same underlying question - see our IRR entry for how the two connect.