Net Present Value Criterion - Important Factor in Validating the Efficiency of an Investment

The net present value has been and will remain one of the main criteria for selecting an efficient criterion. Financial theory has not referred to another more reliable criterion use selecting investment projects, rather than the maximization of net present value. In general, the net present value means the surplus value resulting from the operation of an investment. This surplus (expressed in absolute terms) is the consequence of a comparison between the estimated effects generated by the analyzed investment and the effects that are judged to be obtained on behalf of investment alternatives. The added profitability that will result from selecting and promoting investment projects superior to the investment on the money market, will lead to the increase of the company’s value. The contribution of each investment project, to this additional value of the enterprise, is the net present value.