Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period. It is used to determine the profitability of an investment or project.
The formula involves annual profit and annual investment and indicates whether the project is financially viable.
Why Not Other Options?
A. Net profit – per capita income: Not related to NPV calculations.
B. Total investment – Discounted cash: Misleading and not reflective of NPV.
D. Initial investment – Future value: Incorrect; future value is not part of NPV.
EC-Council References
NPV is a key metric in project selection processes and is highlighted in financial decision-making frameworks for CISOs.
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