Decision tree analysis:
A)provides a relatively quick and easy way to get a rough idea of the probability distribution of NPV outcomes in a capital budgeting project.
B)may prompt management to reject a project with a positive NPV (point estimate).
C)does not apply to IRR analysis.
D)a and b are both correct.

Question

Quizplus · Accepted Answer

Decision tree analysis can indeed provide a quick idea of the probability distribution of NPV outcomes and may lead management to reject a project with a positive NPV if the analysis reveals significant risks or uncertainties. It can also be applied to IRR analysis, making option C incorrect.

Decision Tree Analysis