NPV q

The NPV can also be expressed as a quotient rather than a difference. Define ${\text{Net Present Value (NPV)}}_{q}={\frac {\text{PV (expected cash flows)}}{\text{PV(capital expenditures)}}}$ or ${\text{NPV}}_{q}$ = ${\frac {S}{PV(X)}}$

Using this way of expressing the NPV the rule becomes if ${\text{NPV}}_{q}$ >1 then invest, if ${\text{NPV}}_{q}$ < 1 then don't invest.

${\text{NPV}}_{q}$ is used to determine if a call option should be exercised at expiration. By adding this condition ${\text{NPV}}_{q}$ combines four of five determinants of option value (see Options), The stock price $S$, the expenditure costs $X$, the Risk free rate of return (part of the denominator to discount the costs) and t.