Net present value

<p>How can you judge if something is worth doing when the return of investment happens in the future? </p> <p>The <strong>net present value</strong> is essentially a way of discounting future earnings with a given rate. Calculating an appropriate rate is where the "art" happens. You can include risks, uncertainties, interest rates, etc. </p> <p>You can also see it the other way around, if you use money today and assume a given interest rate, how much money would that represent in the future? </p> <p>If your <a class="wikilink" href="/business_plan/">business plan</a> does not yield a positive net present value, then it may not be worth pursuing: the investment is just too large. </p> <p>One of the challenges in <a class="wikilink" href="/scaleups/">scaleups</a> is that there's no trivial ownership of the evaluation of what actions in the past are yielding returns in the present, and there's a tendency to fall into the <a class="wikilink" href="/sunken_cost_fallacy/">sunken cost fallacy</a>.</p>