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NPV
(Net Present Value)
NPV (Net Present Value) calculates a project's profitability by discounting future cash flows to today's value using WACC. NPV > $0 indicates value creation.
Used in CAPEX budgeting, a $1M NPV project with 10% WACC means it generates $1M beyond the 10% hurdle. Contrast with IRR (breakeven rate)—mutually exclusive projects may have conflicting NPV/IRR rankings. The SEC requires NPV disclosure in oil/gas reserve reports. Limitations include sensitivity to discount rate assumptions. A $10M factory NPV might turn negative if WACC rises from 8% to 12% due to FED rate hikes.
Used in CAPEX budgeting, a $1M NPV project with 10% WACC means it generates $1M beyond the 10% hurdle. Contrast with IRR (breakeven rate)—mutually exclusive projects may have conflicting NPV/IRR rankings. The SEC requires NPV disclosure in oil/gas reserve reports. Limitations include sensitivity to discount rate assumptions. A $10M factory NPV might turn negative if WACC rises from 8% to 12% due to FED rate hikes.