Definition for : Net present value

Net Present value, or NPV, of a Financial security is the difference between Present value of this Security and its Market value; NPV changes in the direction opposite to the change of the Discounting rate. In an Efficient market, NPVs are zero. NPV can be applied to Investment projects also. It represents the value of cash flows linked to the Investment discounted (see Discounting) at the Rate of return required by the market for the level of Risk of the Investment. Hence, NPV represents the amount of Value creation anticipated for this Investment.

(See Chapters Chapter 16 The time value of money and net present value and Chapter 28 investment criteria of the Vernimmen)

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