The correct answer is: C. present value cash flow.
Net present value (NPV) is a method of calculating the present value of a future cash flow. It is calculated by taking the future cash flow and discounting it back to the present using a discount rate. The discount rate is a rate of return that is used to reflect the risk of the investment.
The first step in calculating NPV is to find the present value of the cash flows. This is done by multiplying the future cash flow by the discount factor. The discount factor is a number that is less than 1 and represents the amount that the future cash flow is worth today.
The discount factor is calculated using the following formula:
Discount factor = 1 / (1 + discount rate)^n
Where:
- n = number of years in the future
- discount rate = rate of return
For example, if the future cash flow is $100, the discount rate is 10%, and the number of years in the future is 5, then the present value of the cash flow is:
Present value = $100 / (1 + 0.1)^5 = $61.39
Once the present value of the cash flows is calculated, the NPV is calculated by taking the sum of the present values of the cash flows.
For example, if the present value of the cash flows is $61.39, then the NPV is:
NPV = $61.39
If the NPV is positive, then the investment is worth making. If the NPV is negative, then the investment is not worth making.
The other options are incorrect because they are not used in the calculation of NPV.