According to decision-tree analysis, investment projects should be discontinued when:
A)the probability of success is less than 50 percent.
B)NPV is calculated to be negative.
C)DOL increases from previous levels.
D)the possibility of a failing outcome exists.

Question

Quizplus · Accepted Answer

The main purpose of decision-tree analysis is to determine whether a project will generate a positive NPV (net present value) or not. If the NPV calculation is negative, it means that the project costs more than it will generate in returns, so it should be discontinued. Therefore, choice B is the correct answer.

According to Decision-Tree Analysis, Investment Projects Should Be Discontinued When