Advantages and disadvantages of net present value method.

Advantages and disadvantages of net present value method.

Look at the answers and analyze the correct answers. The net present value method has the following advantages:

① Consider the time value of money;

② Considering all the net cash flow during the life of the project, which embodies the unity of liquidity and profitability;

③ Consider the risk of investment. Because the rate of return or the cost of capital required by the enterprise is related to risk. The greater the investment risk, the higher the required rate of return or cost of capital.

The NPV method also has the following limitations:

(1) cannot reveal the actual rate of return of each investment scheme itself;

② Net present value is an absolute index, which can only reflect the relationship between investment and income of a single investment scheme. If the initial investment of several investment schemes is different, the profit level of investment schemes can not be determined only by net present value, so it is impossible to make a correct evaluation;

③ It is difficult to determine the rate of return or cost of capital required by investors.

Answer analysis

Knowledge points of this topic: net present value method,