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translateGLOSSARY · CAPITAL MARKETS

What is Net Present Value (NPV)?

NPV is the present value of a project's cash inflows minus its initial investment — a positive NPV creates value.

PrepClever Glossary · Capital Markets

updateUpdated July 2026

Formula

NPV = Σ [Cash Flowₜ ÷ (1 + r)ᵗ] − Initial Investment

NPV discounts all future cash flows of a project to today and subtracts the upfront cost. A positive NPV means the project earns more than the required rate of return and should be accepted; a negative NPV means it destroys value.

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Example

A project costing ₹1,000 that returns ₹1,200 in present-value terms has an NPV of +₹200 and is worth doing.

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Relevant NISM series

CFANISM Series XV

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Related Terms

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Glossary

Internal Rate of Return (IRR)

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Glossary

Discounted Cash Flow (DCF)

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FAQs about Net Present Value (NPV)

NPV or IRR — which is better for decisions?add

NPV is generally preferred because it measures value in currency terms and handles unconventional cash flows and mutually exclusive projects more reliably than IRR.

Where to go from here

Net Present Value (NPV) is one term in a much larger syllabus. These are the fastest routes into the rest of it.

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