difference between the present valueof cash inflows generated by the project and the amount of the initial investment (I). The present value of future cash flows is computed using the cost of capital(minimum desired rate of return, or hurdle rate) as the discount rate.
method of determining whether the expected financial performance of a proposed investment promises to be adequate.
method used in evaluating investments whereby the net present value of all cash outflows (such as the cost of the investment) and cash inflows (returns) is calculated using a given discount rate, usually a required rate of return. An investment is acceptable if the NPV is positive. In capital budgeting, the discount rate used is called the hurdle rate and is usually equal to the incremental cost of capital.
