The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.
NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. 
Assumptions:
The NPV analysis then gives a precise formula for deciding whether or not to proceed with the investment project. Applying NPV analysis requires judgements about revenues,expenses, depreciation tax shields, true economic lives of plant and equipment, and the appropriate discount rate. Precision of method is not the same as precision of result.The validity of the assumptions is also critically important.garbage-in, garbage-out
Steps to Calculate
1. Calculation of expected Free cash flows that result out of the investment.
2. Substract/Discount for the cost of capital
3. Substract initial Investments.
Limitations:
1. NPV is widely used for making insvestment decisions.,
a disadvantage of NPV is it does not account for flexibility
after the project decision.
2. NPV is unable to deal with intangible benefits. This inability
decreases its usefulness for stategic issues and projects.
3. Difficult to use for multiple projects.
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