Net Present Value (NPV) is the sum of the present values of all future cash flows from an investment, discounted at the appropriate risk-adjusted rate (typically the WACC), minus the initial investment. A positive NPV indicates value creation — the investment returns more than the cost of capital; a negative NPV signals value destruction. NPV is the theoretically superior capital allocation metric and the foundation of the DCF valuation method. Unlike IRR, it does not assume reinvestment at the same rate and handles unconventional cash flow patterns correctly.

‍

Example: a CHF 5.0 million acquisition generates projected free cash flows of CHF 1.0M, 1.2M, 1.4M, 1.6M and 1.8M over 5 years plus a terminal value of CHF 12.0 million, all discounted at 10% WACC. NPV = sum of PVs - CHF 5.0M = CHF 10.8M - CHF 5.0M = CHF 5.8M. The positive NPV confirms the acquisition creates CHF 5.8 million of value for the acquirer at the assumed discount rate.

‍

Hectelion builds NPV analyses for acquisition decisions and capital allocation, providing sensitivity analysis across discount rate and cash flow assumptions.