When making an investment decision a business might consider what cash flow or profit earned is worth at the present value
Advantages of NPV:
- The discounted cash flow method unlike the payback method and the average rate return correctly accounts for the value of future earnings by calculating present values
- The discount rate used to be changed as worth and conditions and financial markets for example in the 1990s the cost of business is 15%. Investment projects therefore do not need to make such a high rate of return