Understanding Net Present Value in Investments

A dollar in your hand right now is worth way more than a dollar promised to you next year.

This is the golden rule of Capital Budgeting and exactly how massive companies decide how to spend

their cash. Rookies just look at the Payback Method, simply asking how fast they can make

their initial investment back. But that is dangerous because it ignores the clock.

The real pros use Net Present Value. They discount all that future cash to see what it is

actually worth today. If the number is positive, you sign the deal. If it is negative,

you walk away, because a bad investment is always worse than missing out.