What is Net Present value (NPV)? How is it calculated?

The Net Present value (NPV) is a sum of the present or discounted value of costs and benefits for each year. The NPV is a condensed summary of the viability of a project.

A positive NPV implies that the project would have positive gains after paying all costs, including the repayment of loans and operation and maintenance costs, whereas a negative NPV implies that the benefits from the project will not cover all the costs. In this case, it is not justified to implement such projects.

If one out of several options is to be selected then the option with the maximum NPV should be selected. Mathematical formulae and computer programs are available to simplify the calculations.