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Click on each question to check your answer.
1. What is the break-even analysis?
The level of unit sales at which total revenues equal to total costs. This shows the threshold value of each variable at which the decision would change. (p. 295)
2. How would you take the variability of parameters into account in investment analysis?
Describe parameters with a range of possible value: an optimistic estimate, a most likely estimate, and a pessimistic estimate. (p. 296)
3. If event A and event B are statistically independent, what is the joint probability of a combined event of both A and B?
If A and B are statistically independent, then P(A and B) = P(A) × P(B) (p. 301)
4. List the common symbols used to model decisions with decision trees.
They are: decision node, chance node, outcome node, and pruned branch. (p. 305)
5. What is the simple rule of thumb for comparing the risk and return of a project?
If the expected present worth is at least double the standard deviation of the present worth, the project is relatively safe. (p. 314)