What is Net Present Value (NPV)?
NPV discounts every future cash flow back to today's money and subtracts the investment: money later is worth less than money now, and NPV is the metric that takes this seriously. Positive NPV creates value; negative destroys it; between projects, the higher NPV wins.
Exam mercy: you will almost never compute a discount factor — you'll compare given NPVs. Rule: pick the bigger number, and the number is already in today's dollars, so no further adjustment.
Formula
NPV = Σ [cash flow ÷ (1 + r)^t] − initial investment
Worked example
Two warehouse proposals: Project A returns $1.2M over 5 years, NPV $310K; Project B returns $1.4M over 8 years, NPV $260K. B's raw total is bigger, but its money arrives later and later money is cheaper money — A creates more value. NPV is what stops "biggest number" from fooling the committee.