Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or project. It takes into account the time value of money by discounting future cash flows back to their present value. The formula for calculating NPV is relatively simple: NPV = (Cash flow / (1 + r)^t) - Initial Investment Where: - Cash flow is the expected revenue or cost associated with the investment for each period - r is the discount rate, which reflects the opportunity cost of investing in the project - t is the time period A positive NPV indicates that the investment will generate more value than its initial cost, making it a profitable opportunity. Conversely, a negative NPV suggests that the project will not be financially viable. By using NPV, businesses can make informed decisions about whether to pursue an investment based on its potential return and risk. It allows them to compare different projects and determine which one will provide the highest value for their money. In conclusion, NPV is a valuable tool in financial analysis that enables companies to assess the viability of their investments and allocate resources effectively.