According to the Net Present Value (NPV) rule, managers choose to invest if The NPV of the project is greater than zero.
The difference between the present value of cash inflows and outflows over time, or net present value (NPV), is what we refer to as this. The profitability of an anticipated investment or project is examined using NPV in capital budgeting and investment planning.
The calculation of NPV is the outcome of selecting the appropriate discount rate to determine the current value of a stream of future payments. Projects worth starting are those having a positive NPV, while those with a negative NPV are not.
When comparing the rates of return of various projects or comparing a predicted rate of return with the hurdle rate necessary to sanction an investment, NPV takes into consideration the time value of money.
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