Utilizing a decision tree,the NPV used to make the decision to commence the testing for a project is dependent on:
A)only the cash flows related to the actual test.
B)the path with the highest probability of occurrence.
C)all the project's cash flows and probabilities over the project's entire life.
D)only the cash flows and probabilities of the most successful path.
E)the cash flows and probabilities for the first year of the project's life.

Question

Quizplus · Accepted Answer

The decision to commence testing for a project is a critical stage that involves evaluating the project's feasibility and profitability. Utilizing a decision tree, the net present value (NPV) used to make this decision is dependent on all the project's cash flows and probabilities over the project's entire life. This approach ensures that all potential outcomes and their associated risks are considered to make an informed decision about the project's profitability. Therefore, option C is the best choice as it takes into account all the critical variables needed to make an informed decision.

Utilizing a Decision Tree,the NPV Used to Make the Decision