Net Present Value

They are predicting a very slow economic recovery. But that doesn’t mean you should wait to make purchasing decisions for your business. On the contrary, you should buy that asset — if you do so wisely.

It can be challenging to determine whether or not you should make an investment. You make every effort to invest in equipment or a project that is going to earn you more money than it costs. Therefore, it is important to use some sort of calculation to figure out how much the project is likely to earn so that you can determine whether it is worth the initial investment. There are a number of different methods to do this, but one of the better options is the Net Present Value (NPV) method.

In the Net Present Value method, you determine how much your return on a project will be using today’s dollars, so you can figure out whether the initial purchase price or investment makes sense. If the NPV is more than what the initial investment costs would be, it would be a profitable investment. If, however, the NPV is lower than the initial costs it would most likely lose you money so you should pass on the investment. This can also help you to choose between two different options that you are considering as you should choose the one with the higher NPV.

The Net Present Value calculation isn’t all that difficult to do if you have a calculator with special functions. You can find the formula online. However, you will also find Excel spreadsheets work well, or online calculators such as the one at Investopedia.

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