The value today of a project's future cash flows, discounted at the cost of capital, minus what it costs up front.
Net present value (NPV) is the standard test for a capital decision. A dollar received in three years is worth less than a dollar today, so each future cash flow is discounted back at a rate that reflects the company's cost of capital and the project's risk. A positive NPV means the project earns more than that rate; a negative one means it earns less.
NPV = sum of cash flow in year t / (1 + r)^t, for each year t, minus the initial investment, where r is the discount rate. Excel's NPV function discounts from the first period, so add the year-zero outlay separately.
A $100,000 machine returns $40,000 a year for three years. At 10%, the present values are $36,364, $33,058 and $30,053, a total of $99,474. NPV is -$526: just short of the hurdle.
Optimistic cash flows, a discount rate picked to clear the bar, and the year-zero cash flow discounted by mistake. Where it fits in budgeting is covered in capital vs. operating budget.