Net present value (NPV) is the 'today' net value that deprives from 'future' cash flow of an invest-ment or a capital purchase.
The following formula is used to calculate NPV
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Where:
Rt is the net cash flow (cash inflow - cash outflow) during the period t
i is the discount rate
t is the number of time periods
As you can conclude from the above formula, the net present value increases when the numerators (net cash flows) increase and/or denominators (1+i) decrease. So the correct answer should be "Net cash flow during a time period increases"
The purpose of this exercise is to help you identify the factors that influence the net present value and how to increase/decrease NPV in real-world scenario.
[Reference:, - Net present value in capital expenditure, - CIPS study guide page 177, LO 3, AC 3.2]
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