NPV vs WACC
NPV (Net Present Value) and WACC (Weighted Average Cost of Capital) both come up in business conversations and get confused. Here's the plain-English difference, side by side, so you can use each one with confidence.
The key difference: NPV refers to net present value, while WACC refers to weighted average cost of capital — they describe different things even when they show up in the same sentence.
NPV — Net Present Value
The current value of a series of future cash flows, discounted to account for the time value of money. Positive NPV = invest. Negative = don't.
WACC — Weighted Average Cost of Capital
The blended cost of a company's debt and equity, weighted by how much of each it uses. WACC is the discount rate most companies use to evaluate investments.
When to use NPV
Reach for "NPV" when the conversation is specifically about net present value. The current value of a series of future cash flows, discounted to account for the time value of money. Positive NPV = invest. Negative = don't.
When to use WACC
Reach for "WACC" when the conversation is specifically about weighted average cost of capital. The blended cost of a company's debt and equity, weighted by how much of each it uses. WACC is the discount rate most companies use to evaluate investments.
FAQs
What is the difference between NPV and WACC?
NPV stands for Net Present Value — The current value of a series of future cash flows, discounted to account for the time value of money. Positive NPV = invest. Negative = don't. WACC stands for Weighted Average Cost of Capital — The blended cost of a company's debt and equity, weighted by how much of each it uses. WACC is the discount rate most companies use to evaluate investments.
Are NPV and WACC the same thing?
No. They're often used in the same conversation because they're related, but they describe different concepts. NPV = Net Present Value. WACC = Weighted Average Cost of Capital.
When should I use NPV vs WACC?
Use NPV when you're specifically referring to net present value. Use WACC when the topic is weighted average cost of capital.