What is Present Value?

Present value is the discounted amount of a future cash receipt. The present value of future cash flows is always less than the same amount of future cash flows, since you can immediately invest cash received now, thereby achieving a greater return than from a promise to receive cash in the future.

What is Net Present Value?

Net present value is the discounted amount of all future cash receipts and expenditures. It is calculated as the difference between the present value of one or more inbound cash flows and one or more outbound cash flows.

Comparing Present Value and Net Present Value

The key difference between present value and net present value is that present value excludes the discounted amount of all future cash expenditures, while net present value includes it. This means that present value will always be higher than net present value, unless there are no future expenditures at all. Given this difference, present value is usually employed in the analysis of annuities, where there is no future expenditure, while net present value is used to analyze capital expenditures, where there are cash inflows and outflows.