Investment Appraisal and Net Present Value

Vocabulary flashcards covering core concepts and terms related to calculating Net Present Value (NPV) and investment appraisal.

Investment Appraisal

Financial analysis techniques used to help decide whether an investment project is worthwhile or worth proceeding with.

Net Present Value (NPV)

The sum of all the present values of a project's future cash flows, used to determine whether the monetary value now of the project is positive or negative.

Time Value of Money

The core financial concept that receiving cash now is worth more than receiving the same amount in the future, because money today can earn a return and future cash flows carry uncertainty and risk.

Discount Factor

A factor linked to the required rate of return that is applied to a future cash flow to convert it into an estimate of its present value.

Present Value (PV)

The estimated value now of a future cash flow, calculated as $\text{Present Value} = \text{Cash Flow} \times \text{Discount Factor}$.

Required Rate of Return

The target rate of return for an investment project that determines which discount factors are applied to future cash flows.