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 for portfolios of firms.

Question

Quizplus · Accepted Answer

This statement is false as value additivity has important consequences for the value of the entire firm as well as portfolios of firms. Value additivity implies that the value of a whole is equal to the sum of its parts, which means that decisions regarding each part of the firm or portfolio will impact the overall value of the entire firm or portfolio. Therefore, managers should make decisions that maximize the NPV of each individual project or investment within the firm to maximize the overall value of the entire firm.

Which of the Following Statements Regarding Value Additivity Is False