Net Present Value
Definition
The sum of the present values of all future cash flows attributable to a decision or investment, discounted at the appropriate rate, minus the initial investment. A positive net present value indicates that the decision is expected to create more value than it costs at the applied discount rate. Net present value is used in strategic decision modeling to compare the financial merits of competing alternatives on a time-adjusted basis.
Common Misapplication
The most common misapplication is applying a discount rate that does not reflect the actual risk of the decision. Using a company-wide discount rate for a high-risk new market entry decision understates the risk-adjusted cost of the decision and produces a net present value that overstates the expected value creation.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.2: Discounted Cash Flow Analysis.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Net Present Value. https://ffistandard.org/glossary/net-present-value/. 2026.