State if each of the following statements is true or false. Justify your answer. Decision trees can help identify and describe real options. The option to expand increases PV. High abandonment value decreases PV.

Answer and Explanation:

a. The first statement is true as the technique of the decision tree would be represented as a tree-shaped for the possible outcomes also it would help to understand the risk attached with the projects plus it would also provide the options

b. The second statement is true as the present value is the value of the today it would be discounted with the cash flows in order to calculate the present value. If the company has more capital so it would increase in the cash flows so that the investment would be covered up

c. The third statement is false as the abandonment value is the sales value that would be sold immediately. It is not related with the present value also if there is high abandonment value so it would not decrease the present value

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Step-by-step explanation:

4 times 1/4 is 1