25.5.B.1 - Net Present Value (NPV)
Enroll to start learning
You’ve not yet enrolled in this course. Please enroll for free to listen to audio lessons, classroom podcasts and take practice test.
Practice Questions
Test your understanding with targeted questions
What does NPV stand for?
💡 Hint: Think about how investments are evaluated over time.
Is a positive NPV good or bad?
💡 Hint: Remember, it means you're expected to make more than you spend.
4 more questions available
Interactive Quizzes
Quick quizzes to reinforce your learning
What does a positive NPV indicate about a project?
💡 Hint: Remember the acceptance criteria for NPV.
True or False: NPV accounts for the time value of money.
💡 Hint: Think about how money's value changes over time.
1 more question available
Challenge Problems
Push your limits with advanced challenges
A company is considering two different projects. Project A has cash inflows of $150,000 for 5 years and requires an initial investment of $400,000. Project B generates cash inflows of $250,000 for 3 years with the same initial investment. If the discount rate is 10%, calculate the NPV for both projects to determine which one the company should accept.
💡 Hint: Carefully break down the cash flows year by year.
Assume you estimate future cash flows of $500,000, $600,000, and $700,000 over the next three years for a new project with an initial investment of $1,500,000 and a discount rate of 5%. Calculate the NPV and suggest whether to proceed with this project.
💡 Hint: Calculate each cash inflow's present value to arrive at the total NPV.
Get performance evaluation
Reference links
Supplementary resources to enhance your learning experience.