The First Step in Decision Tree Analysis Methodology Is to

question 63

Multiple Choice

The first step in decision tree analysis methodology is to

• A) identify factors such as demand, price, and exchange rate, whose fluctuation will be considered over the next T periods.
• B) identify the periodic discount rate k for each period.
• C) start at period T, work back to Period 0 identifying the optimal decision and the expected cash flows at each step. Expected cash flows at each step in a given period should be discounted back when included in the previous period.
• D) identify the duration of each period (month, quarter, etc.) and the number of periods T over which the decision is to be evaluated.
• E) identify representations of uncertainty for each factor; that is, determine what distribution to use to model the uncertainty.

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Definitions:

Cannibalization

The detrimental impact on sales of a product due to the introduction of a similar product by the same company.

Tiffany/Walmart Strategy

A business approach that contrasts high-end, premium products and services (Tiffany) with low-cost, high-volume goods (Walmart), targeting different market segments.

High-End Segments

Market segments composed of consumers who purchase luxury or premium products and services.

Low-End Segments

Market segments that target price-sensitive consumers by offering products with fewer features or lower quality at a reduced price.