Question

what is one disadvantage of npv as a capital budget method?
it cannot be used to compare mutually exclusive investments.
it can only be used to evaluate bonds.
it can be very difficult to calculate, even if inputs like cash flows are quite clear.
although the weighted average cost of capital is commonly used as the discount rate, it is not a perfect input.

Explanation:

• Analyze each option:
• First option: NPV can compare mutually exclusive investments, so this is wrong.
• Second option: NPV is used for various investments, not just bonds, so this is wrong.
• Third option: NPV calculation, while needing cash flows and discount rate, isn't overly difficult with clear inputs, so this is wrong.
• Fourth option: The discount rate (often WACC) used in NPV has limitations as it's not a perfect input, which is a disadvantage.

Answer:

The option "Although the weighted average cost of capital is commonly used as the discount rate, it is not a perfect input."