A Literature Review on the Net Present Value (NPV) Valuation Method

Abstract

Evaluating different projects is an essential part of capital investment for the firm's future success. Among several evaluation methods, the net present value (NPV) methodology enjoys the highest prevalence. NPV method allows investors to objectively evaluate the efficacy and appeal, as well as compare investment projects that differ in scope, duration, or predicted profit. This article aims to illustrate the basic characteristics of the NPV method, as well as the benefits and shortcomings while applying it. This work could give users comprehensive learning about NPV and facilitate investors to judge whether it is appropriate to choose the NPV method for specific projects management. Besides, the article also provided a comparison between several methods, such as the internal rate of return method, in which case users can better choose the most suitable methods or apply all of them together.