Why is net present value important to a project?

The net present value of money is a calculation which aims to define today's investment in terms of the value of money in the future.

In order to evaluate the sheer financial aspects of a project, sometimes used as a basis upon which to either pursue a project, or drop it, the financial implications may be the deciding factors.

The net present value exercise is commonly used simply to show due diligence in evaluating a project.

From Wikipedia [edited]:

"In finance, the net present value (NPV)of a time series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the individual cash flows.

In the case when all future cash flows are incoming and the only outflow of cash is the purchase price, the NPV is simply the PV of future cash flows minus the purchase price.

NPV is a central tool in discounted cash flow (DCF) analysis, and is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, finance, and accounting."