Net present value
In this lesson, you'll learn how net present value (NPV) works as a project appraisal tool and why it's essential for investment decisions.
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In this lesson
- 0:00 What is net present value
- 0:46 NPV calculation step by step
- 1:56 Setting up your cash flow schedule
- 2:40 Discounting cash flows to present value
- 3:13 Interpreting NPV results and decision rules
About this lesson
NPV compares all cash inflows and outflows over a project's entire life, discounting them to present value using an appropriate discount rate—typically the cost of capital or target rate of return. This technique appears regularly across CIMA and ACCA papers, particularly in Financial Management and Advanced Financial Management modules. You'll work through the four-step NPV calculation process: setting out a cash flow schedule, discounting all cash flows using the correct rate, calculating total present value, and drawing a clear investment decision. The key rule is straightforward—a positive NPV means accept the project; a negative NPV means reject it. By mastering this methodology, you'll be able to confidently evaluate investment opportunities and support strategic financial decisions in both exam scenarios and real workplace situations.
Duration: 4m
Transcript
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