Question

In project appraisal, Net Present Value (NPV) is calculated by:

• A. Subtracting initial investment from total cash inflows
• B. Dividing cash inflows by initial cost
• C. Subtracting present value of outflows from present value of inflows
• D. Adding future inflows without discounting

Hint:

NPV > 0 = Accept project, NPV < 0 = Reject project.

Answer 1

The Correct Option is C

NPV = PV of Cash Inflows – PV of Cash Outflows. It considers the time value of money — future cash flows are discounted back to present value using a discount rate. A positive NPV means the project is expected to generate profit above the cost of capital.

Answer 2

Formula Recall: NPV has one standard formula worth memorizing directly: PV of Inflows − PV of Outflows.

This matches option 3 exactly — it accounts for the time value of money by discounting future cash flows back to today before subtracting.

Option 1 ignores discounting (uses raw totals), option 2 describes a ratio (more like a Benefit-Cost Ratio), and option 4 skips discounting entirely — none of these is the actual NPV formula.