What does net present value (NPV) signify?

• A. The total sum of all cash inflows in a project.
• B. The future value of project profits.
• C. The present value of cash inflows and outflows; positive NPV indicates value.
• D. The break-even point in units sold.

Answer: (C)

Net present value shows what a project’s cash streams are worth in today’s dollars after considering the time value of money and the cost of capital. By discounting every expected inflow and outflow back to today and summing them, NPV reveals whether the project adds value beyond the required return. A positive NPV means the discounted inflows exceed the discounted outflows, so the project creates value for the company; a negative NPV means it would destroy value, and zero means it just earns the minimum required return. This focus on the present value of all cash flows is why the description emphasizes the present value of inflows and outflows and why a positive result signals value creation. The other ideas don’t fit: simply summing inflows ignores costs and timing; projecting a future value misses the current value and neglects outflows; and the break-even point in units relates to volume, not the value of cash flows over time.