Groundlearn / Glossary / Net present value
Net present value (NPV)
Also called NPV. A CFA term, defined in plain English with the distinction examiners test.
What it means
The present value of a project’s cash inflows less the present value of its outflows. A positive NPV adds to shareholder wealth.
The exam angle
NPV and IRR agree on accept/reject for a conventional independent project, and can disagree on ranking mutually exclusive ones. Where they disagree, NPV wins.
Where it appears in the syllabus
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
- Corporate FinanceCFA Level I · exam weight 6–9% · Governance, working capital, capital allocation, capital structure.
On the calculator
Time value of money questions on the BA II Plus come down to five keys and a few traps (payments per year, BGN mode, the sign of cash flows). Watch the keystrokes video.
Related terms
- Internal rate of returnThe discount rate at which a project’s NPV is zero.
- AlphaReturn in excess of what the asset’s risk exposures would predict.
- AnnuityA series of equal cash flows at equal intervals.
- Arithmetic meanThe sum of the observations divided by their number.
- Bayes’ formulaA rule for revising the probability of an event in the light of new information, using how likely that information is…
- BootstrapResampling the observed data with replacement to estimate the sampling distribution of a statistic, without assuming a…
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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