
Quantitative Methods  Net Present Value (NPV)
The time value of money calculations can also be used to calculate the net present value of a series of cash flows, or of an investment plus a series of cash flows. Basically, the net present value calculation compares the value of a dollar today with the value of that dollar in the future, after taking rate of return and/or inflation into account. When evaluating an investment, it is desirable for the net present value to be greater than the amount invested; otherwise, there is no incentive to make that investment.
Exam Tips and Tricks A typical time value of money question will look something like this: 
 If $10,000 is invested at 6%, compounded monthly, it would be worth $18,194 in 10 years. $18,194 would be the investment's _____________.
 Internal rate of return
 Present value
 Expected return
 Future value
Rates of ReturnThe correct answer is "d"  the ending value is known as the future value.
Related Articles

Forex Education
Time Value Of Money: Determining Your Future Worth
Determining monthly contributions to college funds, retirement plans or savings is easy with this calculation. 
Options & Futures
Understanding Net Present Value
Learn how this value is used to determine the worth of a project. 
Fundamental Analysis
Calculating Future Value
Future value is the value of an asset or cash at a specified date in the future that is equivalent in value to a specified sum today. 
Fundamental Analysis
What is Present Value?
Present value tells us how much a future sum of money is worth today, given a specified rate of return. This is an important financial concept based on the principle that money received in the ... 
Fundamental Analysis
Guide To Excel For Finance: PV And FV Functions
The Present Value or "PV Function" in Excel helps the user determine the current value of a financial asset. For instance, analysts can value a stock by forecasting its future profits, or cash ... 
Options & Futures
StockPicking Strategies: Value Investing
Value investing is one of the best known stockpicking methods. In the 1930s, Benjamin Graham and David Dodd, finance professors at Columbia University, laid out what many consider to be the ... 
Investing Basics
What is Terminal Value?
The terminal value of an asset is its anticipated value on a certain date in the future. 
Investing Basics
How to Calculate Required Rate of Return
Investors use the required rate of return to decide where to put their money, and corporations use it to decide if they should pursue a new project. 
Fundamental Analysis
Calculating Present Value Interest Factor
The present value interest factor is a number that makes it easier to calculate the present value of a payment or value to be received in the future. 
Investing Basics
Does Active Value Investing Pay Off?
Learn about a recently published paper that explores why active value investors underperform.
RELATED TERMS

Net Present Value Rule
A rule stating that an investment should be accepted if its net ... 
Net Present Value  NPV
Net Present Value (NPV) is the difference between the present ... 
Embedded Value
A common valuation measure used outside North America, particularly ... 
Capitalization Of Earnings
A method of determining the value of an organization by calculating ... 
Book Value
1. The value at which an asset is carried on a balance sheet. ... 
Adjusted Present Value  APV
The Net Present Value (NPV) of a project if financed solely by ...
RELATED FAQS

How do investors calculate the present value of a future investment?
Learn what present value is, how to calculate the present value of a future investment, and what formula investors use to ... Read Answer >> 
What is the difference between a company's book value per share and its intrinsic ...
Book value and intrinsic value are two ways to measure the value of a company.In simple terms, book value is based on the ... Read Answer >> 
What is the difference between present value and net present value?
Understand the difference between the present value and net present value calculations and how these formulas are used in ... Read Answer >> 
What is the difference between book value and market value
Learn the differences between book value and market value, and see how investors use each type to determine if a company ... Read Answer >> 
Which of the following is not needed to calculate the net present value of an investment?
A. The amount of interest expected to be generated each year B. The time horizon – how long the investment is expected to ... Read Answer >> 
What can cause an asset to trade above its market value?
Learn some of the factors that can affect the price of an investment asset and the major reasons why an asset might trade ... Read Answer >>