With your net income calculations complete, you now know what a project will make over the course of its life. If you are considering more than one option, then it’s possible that the lengths of your projects aren’t all the same. Some projects may be five years, some only three and some ten years long. This might not have caught your eye as being very important, but actually it is a crucial detail. Because the length of time is different, you can’t really compare the different options based on profit alone. If one project makes $100,000 over 5 years and one makes $75,000 over three years, how can you decide which project is better? Well, you really can’t. It isn’t an apples to apples comparison.

Net Present Value is a way to interpret the results of your net income calculations, by translating all the future amounts the project will earn into today’s money. With all the amounts in today’s money now the playing field is even and you can really compare them.

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