- 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 statements is false?
B. A positive NPV signifies that a project's cash flows exceed what is needed to repay the invested capital.
C. A negative NPV signifies that a project's cash flows fall short of repaying the invested capital.
D. Accepting projects with positive NPV increases shareholders' wealth.
A. An NPV of zero signifies that a project's cash flows are zero.
B. A positive NPV signifies that a project's cash flows exceed what is needed to repay the invested capital.
C. A negative NPV signifies that a project's cash flows fall short of repaying the invested capital.
D. Accepting projects with positive NPV increases shareholders' wealth.
Correct Answer: A
An NPV of zero signifies that the project's cash flows are just enough to repay the invested capital.
User Contributed Comments 3
| User | Comment |
|---|---|
| haarlemmer | C should be stated in this way the project's discounted cash flows fall short from ... since the cash flow may be just enough or more than the initial investment, however, when discounted or NPVed, short to pay back the investment. |
| mtcfa | Yes C should read the project's discounted cash flows. But if they can't cover the cost when undiscounted, it is true nonetheless. |
| DonAnd | by the process of elimination, A is correct |