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Net Present Value Criterion - Important Factor in Validating the Efficiency of an Investment

Author

Listed:
  • Caruntu Constantin

    („Constantin Brâncusi”University, Faculty of Economics and Business Administration)

  • Lapadusi Mihaela Loredana

    („Constantin Brâncusi”University, Faculty of Economics and Business Administration)

Abstract

The net present value has been and will remain one of the main criteria for selecting an efficient criterion. Financial theory has not referred to another more reliable criterion use selecting investment projects, rather than the maximization of net present value. In general, the net present value means the surplus value resulting from the operation of an investment. This surplus (expressed in absolute terms) is the consequence of a comparison between the estimated effects generated by the analyzed investment and the effects that are judged to be obtained on behalf of investment alternatives. The added profitability that will result from selecting and promoting investment projects superior to the investment on the money market, will lead to the increase of the company’s value. The contribution of each investment project, to this additional value of the enterprise, is the net present value.

Suggested Citation

  • Caruntu Constantin & Lapadusi Mihaela Loredana, 2011. "Net Present Value Criterion - Important Factor in Validating the Efficiency of an Investment," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 327-331, May.
    • Handle: RePEc:ovi:oviste:v:11:y:2011:i:1:p:327-331
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    More about this item

    Keywords

    investment project; net present value; interest; investment money;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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