Which of the following statements regarding value additivity is FALSE?
A)The value of a portfolio is equal to the sum of the values of its parts.
B)The price or value of the entire firm is equal to the sum of the values of all projects and investments within the firm.
C)To maximize the value of the entire firm,managers should make decisions that maximize NPV.
D)Value additivity does not have important consequences for the value of the entire firm,only on portfolios of firms.

Question

Quizplus · Accepted Answer

This statement is false because value additivity has important consequences for both portfolios of firms and the value of the entire firm. The value of a portfolio is equal to the sum of the values of its parts, and the price or value of the entire firm is equal to the sum of the values of all projects and investments within the firm. To maximize the value of the entire firm, managers should make decisions that maximize NPV, which is based on the concept of value additivity.

Which of the Following Statements Regarding Value Additivity Is FALSE