Asked by Luqman Waheeduddin on Jul 13, 2024
Verified
A(n) ____ is a graphic representation of a business project in which events have multiple outcomes, each of which is assigned a probability.
A) probability distribution
B) decision tree
C) NPV profile
D) real option
Decision Tree
A timeline representation used in planning projects subject to multiple outcomes. Wherever an event has several outcomes, the timeline branches into as many paths, each with a probability. The result is a proliferation of possible paths to completion, each representing an outcome, its financial implication, and its probability. Hence, the decision tree specifies a probability distribution for the project’s overall financial outcome.
NPV Profile
A graphical representation showing the relationship between the Net Present Value (NPV) of a project and various discount rates.
- Explain the concept of decision trees in analyzing project outcomes.
Verified Answer
MH
Moazzam HossainJul 18, 2024
Final Answer :
B
Explanation :
A decision tree is a graphic representation of a business project that shows different possible outcomes and the probabilities of each outcome. It is commonly used in decision analysis to help visualize and weigh different options. Probability distribution refers to the likelihood of different outcomes occurring, but it does not necessarily involve a graphical representation. NPV profile and real option both refer to specific financial analysis techniques, but they do not involve decision trees.
Learning Objectives
- Explain the concept of decision trees in analyzing project outcomes.