Theoretical Analysis of Net Present Value

Abstract

This paper reviews researches on net present value done by researchers in the past 25 years to summarize the research results and put forward limitations. Although the investment decision guided by net present value possesses a long history and investors use it widely in the current financial market, the author believes that it still has the value of being discussed and studied. After a comprehensive review, it is found that in the past 25 years, the research on net present value has focused on comparing its advantages and disadvantages with other investment decision-making schemes and how to apply the NPV approach to special industries, but less follow-up on the actual progress of subsequent investment projects. Despite the NPV approach is generally accepted as the gold standard for enterprises to make investment decisions, with the continuous development of international finance and economy, the success rate of using the NPV approach for investment might be extraordinarily different from that when the NPV approach was initially popularized. After the review, this paper finds that researchers lack practical consideration for the NPV approach. Therefore, the significance of this review is to attract researchers' attention to the above issue so as to make up for the gap in the later stage of research on the implementation of the NPV approach.