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Basic Question 21 of 29

Which of the following is NOT correct?

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.
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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
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes

Barnes

Learning Outcome Statements

describe the capital allocation process, calculate net present value (NPV), internal rate of return (IRR), and return on invested capital (ROIC), and contrast their use in capital allocation

CFA® 2024 Level I Curriculum, Volume 2, Module 5.