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

The fact that the decision tree indicates an expected NPV of $1 million does not necessarily mean that all outcomes had a positive NPV or that $1 million is the firm's minimum guaranteed profit. It simply means that, based on the information available, the project is expected to generate a positive NPV of $1 million. However, there is still uncertainty involved in the project, as indicated by the use of a decision tree to model different scenarios and their associated probabilities.

If a Decision Tree Indicates an Expected NPV of $1