Net Present Value (NPV) is a method used in finance and investment to evaluate the profitability of a project or investment. It calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time. The formula for NPV is: NPV = ∑ (Cash Inflow / (1 + r)^t) - Initial Investment Where: - Cash Inflow = net cash inflow during the period - r = discount rate (the investor's required rate of return) - t = number of time periods A positive NPV indicates that the projected earnings (generated by an investment) exceed the anticipated costs (also known as the initial investment), thus suggesting the investment is likely to be worthwhile. Conversely, a negative NPV suggests that costs outweigh revenues, leading to a potential loss.