Net present value
(NPV)
Difference between
present value (PV) of
cash inflows and PV of
cash outflows
PV of after-tax cash
inflows PV of cash
outflows
1. Considers the time
value of money
2. Focuses on after-tax
cash flows
3. Consistent with
goal of maximizing
shareholder value
1. Can possibly lead to
suboptimal capital
budgeting under
condition of capital
rationing