Why does a strict NPV calculation typically understate the value of a company or project?

Question:

Why does a strict NPV calculation typically understate the value of a company or project?

How to Assess NPV Estimate

The net present value (NPV) is the most used capital budgeting tool in evaluating investment projects. However, the method provides an estimate under uncertain outcomes in the future and therefore, ignores the possible upside events.

Answer and Explanation:

When using the NPV method, managers often confront a YES or NO answer. If the NPV is positive, invest and if not, not invest. However, the NPV method...

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Net Present Value: Evaluating Estimates
Net Present Value: Evaluating Estimates

from Financial Accounting: Help and Review

Chapter 4 / Lesson 1
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