Final answer:
A project's NPV is a measurement of the dollar value added to a firm by proceeding with the project, representing the present value of future cash flows minus the present investment costs.
Step-by-step explanation:
A project's net present value (NPV) measures the dollar value added to the firm's equity by taking the project. This value is calculated by comparing a set of present costs of making a physical capital investment to the present discounted value of future benefits.
The NPV helps in determining the expected rate of return and the overall worth of future cash flows in present terms, after taking into account the time value of money and cost of investment. It's an indispensable analytical tool used both inside and outside the world of finance, from evaluating business investments to making governmental policy decisions and assessing environmental policy disputes.