Net present worth (NPW) is a financial metric used to determine the value of a project or investment over time. It represents the present value of all future cash flows associated with the project, discounted back to the present day using a specified discount rate. NPW is a widely used tool in capital budgeting and project evaluation.
The relevance of NPW lies in its ability to provide a comprehensive measure of a project’s profitability. By considering both the timing and the magnitude of future cash flows, NPW allows decision-makers to compare and select projects that maximize the present value of their returns. NPW also aligns with the time value of money concept, recognizing that future cash flows are less valuable than present cash flows.