Net present value

The present value of a project's cash inflows minus the present value of its outflows. Positive means the project adds value at the required return.

An investment of ₹1,000 crore returning ₹300, ₹400, ₹500 and ₹300 crore over four years has a net present value of ₹133.3 crore at a 12% discount rate.

The rule is to take every project with a positive figure, subject to the capital available, and this is where corporate finance theory and corporate behaviour part company. Projects are approved for strategic reasons, for empire building, and because the forecast was written by the person who wanted the project.

Ask who prepared the assumptions.