Why is the net present value criterion the best way to evaluate proposed investments?

Net present value in a simple words can be described as variance between present value of cash
inflows and the present of cash outflow over a certain period of time. Net present value is used
while making and different investment planning which will help us to calculate and analyze the
profitable outcome of the investments. Net present value will help us to project in different ideas
from capital budgeting to different concepts for investments[ CITATION Ken194 \l 1033 ]. Net
present value can be calculated by the formula:
NPV = n ∑ t=1 Rt
(1+i)t
Where,
Rt = Net cash flow - outflow during the period of time.
I = Discount rate
T = Number of time period.
There is also different way to calculate without using the summations and make it just easy to
understand the concept is :
NPV = TVECF – TVIC
Where,
TVECF = Todays value of expected cash flow.
TVIC = Today value of invested cash.
When we look at this formula, we can understand here time value of money, discount rate and
different idea about why net present value is the best way to evaluate proposed
investments[ CITATION Ken194 \l 1033 ].

 Firstly, NPV gives us the measurement of time. When we have multiple place to invest to
have to take a decision where should we invest. Here NPV will help us to look at the
quick return of our investment. The investment which gives us the fastest return in the
future is the place we invest because taking risk for longtime may bring different
problems. NPV will help us to evaluate the investment by time.
 Secondly, NPV cash flow can be used for different corporate purposes shares and
investments and many other capital budgeting techniques. Now if we look at the discount
cash flow properly we will understand that time value of money is a persistent factor in
human nature other approaches like PB and ARR may ignore this. This can make NPV
the best way to evaluate.
 Lastly when we look at the different approaches IRR does these theoretically closely like
NPV, but can rank mutually exclusive investments depending on the scale time and cash
flows. so, IRR doesn’t recognize the scope of investment like NPV does.
NPV is one of the most best way to evaluate the proposed investments, which will give us an
idea for most profitable invest that we should make. NPV is more refined from both
mathematical and time value of money perspective than any other way. So, company often use
NPV methods for capital budgeting which give more insights in whether to invest or not in new
capital[ CITATION Pea18 \l 1033 ].

References
Kenton, W. (2019, june 25). NET Present Value. Retrieved from Investopedia:
https://www.investopedia.com/terms/n/npv.asp
Peavler, R. (2018, october 15). Net Present Value. Retrieved from The blanacesmb:
https://www.thebalancesmb.com/net-present-value-npv-as-a-capital-budgeting-
method-392915
Ross, S. A., Westerfield, R. W., & Jordan, ,. B. (2013). fundamentals of corporate finance . New
York: McGraw-Hill Companies, Inc.