The term "net present value" refers to the current value of all future cash flows generated by a project, including the initial capital investment.
It is widely used in capital value budgeting to determine which projects are most likely to generate the highest profit. The net present value formula changes depending on the number and consistency of future cash flows. If the NPV of a project or investment is positive, it means that the discounted present value of all future cash flows associated with that project or investment is positive. The NPV formula's premise is to compare an initial investment to a project's future cash flows.
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