- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 5. Capital Investments and Capital Allocation
- Subject 2. Capital Allocation
CFA Practice Question
Which of the following is NOT correct?
II. The financial manager acts in the shareholders' best interests by identifying and taking positive NPV projects.
III. NPV can normally be directly observed in the market.
IV. Investment criteria other than NPV provide additional information about whether or not a project truly has a positive NPV.
I. NPV is always just the difference between the market value of an asset or project and its cost.
II. The financial manager acts in the shareholders' best interests by identifying and taking positive NPV projects.
III. NPV can normally be directly observed in the market.
IV. Investment criteria other than NPV provide additional information about whether or not a project truly has a positive NPV.
Correct Answer: I and III
User Contributed Comments 7
| User | Comment |
|---|---|
| kamal3rl2 | I: it not the market value, it's the discounted future cash flows of the project or asset, which is usually different from the market value. |
| tschorsch | NPV would approximate market value of a project if the project could be marketed. I is wrong because the market value (of the project/asset) would already have factored in the cost. |
| Rchan89 | Is the reason for 3 because cash flows are not normally shown to the public? |
| johntan1979 | Tell-tale sign that something is fishy: "always" |
| leonaray0 | Rchan: I believe 3 has to do with the divergence between market prices and NPV, as does 1 |
| holtz | why is IV correct? how can a project have a positive NPV but not a "truly positive NPV," and what are the investment criteria to determine this? |
| houstcarr | yeah agree with holtz |