One limitation of the net present value approach to investments is that investments with identical net present values may have very different cash flows.

Question

Quizplus · Accepted Answer

The net present value approach only considers the timing and amount of cash flows, not the specific pattern or variability of those cash flows over time. Therefore, investments with the same net present value can have different cash flow profiles, which may affect their risk or desirability to investors.

One Limitation of the Net Present Value Approach to Investments