What Is Net Present Worth
Net present worth (NPW) is a finance method that compares the value of money today with its value in the future. It discounts expected cash flows to a single present value figure.
How the Net Present Worth Formula Works
The formula subtracts the present value of costs from the present value of benefits. It uses a discount rate to reflect the time value of money and opportunity cost.
When to Use Net Present Worth
Use NPW to evaluate projects, compare alternatives, and rank investments. It helps determine whether expected returns exceed the required return, making it a key tool in capital budgeting.
