Final answer:
NPV requires precise cash flow estimations and assumes a steady discount rate, but it does consider the timing of cash flows and needs extra steps to factor in project risk.
Step-by-step explanation:
The Net Present Value (NPV) method is a tool used for capital project evaluation that takes into account the time value of money by discounting future cash flows back to their present value. However, this method has several disadvantages.
First, it requires an accurate estimation of cash flows, which can be challenging and prone to errors. Second, NPV assumes a constant discount rate throughout the life of the project, which may not hold true in reality as market conditions and risk factors can change over time. Third, contrary to what is stated in the question, NPV actually does consider the timing of cash flows, as cash flows at different time points are discounted back to the present at the specified discount rate. Finally, NPV in its basic form does not inherently account for the risk associated with the project; adjustments need to be made to incorporate risk, such as using a higher discount rate to reflect increased uncertainty.