A Decision Tree Shows a 30 Percent Probability of $2

question 107

Multiple Choice

A decision tree shows a 30 percent probability of $2 million in returns and a 70 percent chance of $1 million in returns.What is the maximum you would invest today in this project if the cash in-flow occurs one year in the future and the discount rate is 10 percent?

• A)$818,182
• B)$1,181,818
• C)$1,300,000
• D)$1,363,636 NPV = - investment
• 0 = - investment

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Definitions:

Adverse Selection

A situation in financial markets where buyers and sellers have access to different levels of information, often leading to transactions where the party with less information is at a disadvantage.

Tech Support

A service provided by companies to help customers solve technical problems or issues related to their products or services.

Bureaucratic Structure

An organizational structure characterized by strict rules, a hierarchy of authority, and a clear division of labor.

Going Rate

The current standard price or wage rate for goods, services, or labor in a particular market or industry.