What is the meaning / definition of Net Present Value in the hospitality industry?
NPV stands for: Net Present Value
It is a financial indicator used for evaluating investments. Basically, it represents the income that will result from the investment, minus all the costs. It also takes into account the discount rate and thereby the time value of money, meaning the depreciation of the value of costs and incomes in the future.
Thanks to this, investors can measure if the investment is viable or not. If the choice remains between two investments, with the same NPV, the IRR is able to assist in making the final call.
How to calculate the NPV?
Formula: NPV = F / [ (1 + i)^n ]
PV = Present Value
F = Future payment (cash flow)
i = Discount rate (or interest rate)
n = the number of periods