Net Present Value (NPV)
Evaluate the profitability of an investment by discounting future cash flows to their present value.
NPV ($)
The Mathematics of DCF
The core formula is NPV = ∑ [Rt / (1+i)^t] - C0. If NPV > 0, the investment theoretically yields value above the cost of capital.
A common mistake is using a static discount rate across decades without adjusting for varying inflation expectations or risk premiums.