Net Present Value (NPV) is a fundamental concept in finance used to assess the value and viability of an investment project. It represents the current worth of all future cash flows—both inflows and outflows—associated with the project, discounted to their present value using a specified discount rate. The discount rate typically reflects the cost of capital or required rate of return for the investor.

For example, if a company considers undertaking a new project that involves initial capital expenditure of $100,000 with expected future cash inflows of $30,000 annually for five years, the NPV can help determine whether the project is worth pursuing by factoring in the time value of money. If the calculated NPV is positive, it indicates that the project's returns exceed its costs and expected earnings, making it favorable. Conversely, a negative NPV signals that the project may not yield enough returns to justify the investment.

In decision-making scenarios, NPV is often used to compare the profitability of multiple investment opportunities. For instance, a manager might evaluate the NPVs of two potential projects and choose the one with the higher positive NPV. Key related terms include 'discount rate', 'cash flow', and 'investment appraisal'.