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 does have important consequences for the value of the entire firm, not just portfolios of firms. The other statements are true. Value additivity is an important principle in finance that states that the value of a whole is equal to the sum of the values of its parts. This principle applies to portfolios of investments and to entire firms. To maximize the value of either, managers should make decisions that maximize NPV (net present value).

Which of the Following Statements Regarding Value Additivity Is False