Asked by Taran Thiara on Jul 11, 2024
Verified
One limitation of the net present value approach to investments is that investments with identical net present values may have very different cash flows.
Net Present Value
A financial metric used to estimate the value of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows.
Cash Flows
Movements of money into or out of a business, project, or financial product, often analyzed for assessing financial health or the viability of investments.
- Comprehend the use of financial assessment instruments such as Net Present Value in making investment choices.
Verified Answer
AC
Ashley ChristineJul 14, 2024
Final Answer :
True
Explanation :
Net present value approach considers the time value of money and discounts future cash flows. However, investments with the same NPV may have different timings and amounts of cash flows. Therefore, NPV alone may not provide a complete picture of an investment's potential.
Learning Objectives
- Comprehend the use of financial assessment instruments such as Net Present Value in making investment choices.