In financial planning, what is the primary goal of net present value?

The primary goal of net present value (NPV) in financial planning is to assess profitability. NPV is a financial metric that evaluates the profitability of an investment or project by calculating the difference between the present value of cash inflows and the present value of cash outflows over time. By discounting future cash flows to their present value, NPV helps investors and businesses determine the value of an investment in today's dollars.

When NPV is positive, it indicates that the projected earnings (in present terms) exceed the anticipated costs, suggesting that the project is likely to be profitable and worth pursuing. Conversely, if the NPV is negative, it implies that the project's costs outweigh the benefits, making it less attractive from a financial standpoint. Therefore, NPV is crucial for making informed investment decisions and assessing the potential success of projects.

While estimating project costs, determining future value, and calculating loan repayment terms all play important roles in overall financial planning, they do not directly relate to the concept of net present value, which specifically focuses on evaluating the profitability of investments.