Net Present Value (NPV) is a financial calculation used to determine the current value of a future stream of cash flows. By incorporating an infinite discount rate, this method assumes that the value of future cash flows will remain constant over time. For instance, an investor evaluating a project with an expected cash flow of $100 per year perpetually would use an infinite discount rate to determine the present value of this annuity.
Calculating NPV with an infinite discount rate provides insights into the long-term profitability and sustainability of a project. Notably, it was in the early 19th century that mathematician and economist, John Stuart Mill, first introduced the concept of using an infinite discount rate to determine the present value of a perpetual annuity.