Net Present Value Method
Definition of "Net present value method"
A method widely used for evaluating real estate projects. Under the net present value method, the present value (PV) of all cash inflows from the project is compared against the initial investment (I). The net present value (NPV) which is the difference between the present value and the initial investment (i.e., NPV=PV-I), determines whether or not the project is an acceptable investment. To compute the present value of cash inflows, a rate, called the cost of capital is used for discounting. Under the method, if the net present value is positive (NPV>0 or PV.I), the project should be accepted.
Popular Real Estate Terms
In any field, from the corner store or long-term rentals, the potential gross income is the expected revenue earned from a sale or the rendering of services. The potential gross income ...
Individual who has a legal obligation to pay money to another. ...
Interest rate on a mortgage that moves up or down based on some variable such as an index of lender's cost of funds, inflation rate, or prime rate. ...
Primary business district of a city or urbanized area having the areas major governmental offices, professional, and retail businesses represented. ...
Concept used in valuing real property that conditions may be altered requiring a revised estimate of market value. These conditions include a shift in the demand/supply relationship, ...
Part of a building that is connected to but leads away from the main structure. ...
Used when determining the worth of an annuity that reinvests the amount of recaptured investment at a risk-free interest rate. ...
Some plausible, but not completely clear-cut indication of ownership rights. It supplements a claim to title to property, but does not actually establish it. ...
Real annual return on a real estate investment. It equates the initial investment with the present value of future net cash inflows from the investment. The IRR can be determined by using a ...
Have a question or comment?
We're here to help.