Managerial Accounting: "Chapter 8, Section 2: Net Present Value and Time Value of Money"

NPV combines the present value of all cash flows associated with an investment, both positive (for example from sales) and negative (from expenses) into one figure suitable for management decisions making. The term discounted cash flows is also used to describe the NPV method. One critical factor in determining the NPV is the discount rate: that is, what time value (forgone interest rate) does you associate with future receipts of money.