Present value and net present value

Discount cash flows at different times to compare values at the same point in time.

Method · Accounting and finance

Core concepts

• Cash flows: timing and amounts of actual inflows and outflows
• Discount rate: assumptions about time and risk
• Net present value: present value of inflows less outflows

Application

State cash flows, discount rates and time horizons when comparing projects, and compare outcomes under changed assumptions.

Limitations and jurisdiction

Results are sensitive to estimates of future cash flows and discount rates. They do not guarantee forecasts or investment returns.

Editorial perspectives

• Conservative assumptions: examine downside scenarios and funding constraints.
• Growth assumptions: state conditions for expansion and the evidence needed.

Sources

OpenStax · Principles of Finance 2e · Open textbook, second edition

Context: General finance theory; not individual investment advice

Source checked: 2026-10-07

Independent editorial summary and source link; the original text is not republished.

Related personas

Translation status

Editorial English translation of the Korean edition. No professional translation or occupational expert review has been completed. Translation does not change the source jurisdiction.

Translation prepared: 2026-10-08 · Source fingerprint: kb-759906cc7f9096ae

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