Net Present Value (NPV) is a core concept in corporate budgeting used to analyze the profitability of a projected investment. It represents the difference between the present value of future cash inflows and the present value of cash outflows over a period of time. It’s a powerful tool because it considers the time value of money, meaning a rupee today is worth more than a rupee tomorrow.

• Formula: NPV = Σ [ Cash Flowt / (1 + r)t ] – Initial Investment, where ‘t’ is the time period and ‘r’ is the discount rate.
• Positive NPV (> 0): The investment is projected to be profitable and should be accepted. The expected return is greater than the discount rate.
• Negative NPV (< 0): The investment is projected to result in a net loss and should be rejected.
• Zero NPV (= 0): The investment is projected to generate returns exactly equal to the discount rate. The decision may depend on non-financial factors.