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TUBInvesting
15 Mar 2019
Finance at Singapore Management University
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Hello! Here are some disadvantages of using Net Present Value to measure investments
1) NPV is sensitive to discount rates. A small change in the discount rate will have a considerable effect on the final output.
2) Your investment would not have the same level of risk throughout the entire time period.
3) When using NPV as an investment criteria, it excludes all the value of any real options that may exist within the investment.
Hope this helps!
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NPV calculation requires A LOT of assumptions - which is why many people dislike them.
But NPV always act as a good indicator as well if you use a high discount rate.