Question

what is one disadvantage of npv as a capital budget method

it is only useful for evaluating a single project in isolation.

it cannot be interpreted without also knowing the payback period.

it is not an efficiency metric, so it does not capture percentage gain relative to the investment.

it can be unclear whether or not an investor should undertake a negative npv project

Explanation:

• Analyze each option:
• First option: NPV can compare multiple projects (not just single), so wrong.
• Second option: NPV is interpreted on its own (no need for payback period), so wrong.
• Third option: NPV measures total value, not efficiency (like IRR does for percentage gain relative to investment). This is a valid disadvantage.
• Fourth option: Negative NPV projects are typically rejected (clear), so wrong.

Answer:

The option: "It is not an efficiency metric, so it does not capture percentage gain relative to the investment."