Net Present Value

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What it means

The present value of future cash flows minus the initial investment.

Why it matters

Positive NPV = the project creates value at the discount rate you chose.

How to calculate — with Cawan's Shoes

NPV = Σ CFt/(1+r)^t − CF0. Cawan's new factory: −$10M today, then $3M/yr for 5 yrs at 10% → NPV ≈ $1.37M.

What's at stake if you ignore this

Ignore NPV and you fund value-destroying projects that 'look' profitable.