If a decision tree indicates an expected NPV of $1 million,then:
A) at least one of the outcomes had a negative NPV.
B) all of the outcomes had a positive NPV.
C) $1 million Is the firm's minimum guaranteed profit.
D) the project still contains uncertainty.

Question

Quizplus · Accepted Answer

A decision tree takes into account the uncertainty associated with various outcomes, which means that there is still a level of risk or uncertainty associated with the expected NPV. Therefore, option D is the correct choice. Option A may or may not be true, as the decision tree can include both positive and negative NPVs. Option B is not necessarily true, as the decision tree may have some outcomes with negative NPVs. Option C is also not true, as the expected NPV is an estimate rather than a guaranteed profit.

If a Decision Tree Indicates an Expected NPV of $1