Eli5: What is NPV (Net Present Value) in the most simplest terms? I have a non-finance background
In: 5
The value of money depends on when you get it. Getting 100$ today is better than getting 200$ in 30 years. Not only because of inflation but because if you want to spend 100$ now you’d have to take a loan and pay interest for 30 years. The earlier you get money the better, the later you pay something the better, makes sense?
Okay NPV tries to normalize that so money at different timepoints becomes comparable. Project A makes me 1 million next year, Project B makes me 1.3 million the year after, wich one is better?
NPV basically corrects every value to “now” by subtracting/adding the assumed interest rates
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