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The Net Present Value method is modern method of evaluating investment proposals. This method takes into consideration the time value of money and attempts to calculate the return on investments by introducing the factor of time element. It recognizes the fact that a rupee earned today is worth more than the same rupee earned tomorrow. The Net Present Value of all inflows and outflows of cash occurring during the entire life of the project is determined separately for each year by discounting these flows by the firm's cost of capital or a pre determined rate.

To select between mutually exclusive projects, projects should be ranked in order of net present values, i.e. the first preference should be given to the project having maximum positive net present value.

How would this apply to multiple projects? Please comment.

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