📈 Metrics

Net present value (NPV)

Future cash, translated into today's money.

Formula

NPV = Σ Cash flowₜ ÷ (1 + r)ᵗ − Initial investment

A rupee next year is worth less than a rupee today. NPV discounts future cash flows back to today and subtracts the upfront cost.

Positive NPV means the project creates value at your required return.

🧮 Example

Pay ₹100 today to get ₹60 in each of the next two years at 10%: 54.5 + 49.6 − 100 = +₹4.1 → worth doing.

🎯 Interview tip

In interviews, you rarely compute full NPV — show you know to discount and compare with the cost.

Used in

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Return on investment (ROI)

How much you gained for every rupee you invested.

Payback period

How long until an investment earns back what it cost.

Synergies

Extra value created by combining two companies.

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