The conservation of value corollary of the value-creation principle says that:
A)Reducing costs is the first step in creating value.
B)Return on invested capital must increase over time to create value.
C)Anything that does not increase cash flows does not create value.
D)Acquisitions always create more value than divestitures.

Question

Quizplus · Accepted Answer

The conservation of value corollary states that anything that does not increase cash flows does not create value. This means that value is conserved only when there is a positive cash flow generation. Therefore, reducing costs may not necessarily create value unless it leads to increased cash flows. Return on invested capital increasing over time may create value, but it is not the only factor. Acquisitions and divestitures may or may not create value, depending on the specific circumstances.

The Conservation of Value Corollary of the Value-Creation Principle Says