Question

To evaluate alternative new venture strategies using decision trees, it is necessary to:

A. Construct a decision tree of all of the real options, and their associated payoffs and probabilities, then, starting with the last decision, evaluate the conditional value of each alternative and work backward through the tree to the initial decision.

B. Construct a decision tree of the important options, and their associated payoffs and probabilities, then, starting with the last decision, evaluate the conditional value of each alternative and work backward through the tree to the initial decision.

C. Construct a decision tree of the important options, and their associated payoffs and probabilities, then, starting with the current decision, evaluate the value of each alternative, working forward through the tree to the final decision.

D. Construct a decision tree of all of the real options, and their associated payoffs and probabilities, then, starting with the current decision, evaluate the value of each alternative, working forward through the tree to the final decision.

Answer 1

A decision tree to evaluate alternative new venture strategies is always moved backward to the intial decision and the decision tree is made up of real options not only the important decisions. Therefore,  we should construct a decision tree of all of the real options, and their associated payoffs and probabilities, then, starting with the last decision, evaluate the conditional value of each alternative and work backward through the tree to the initial decision

Therefore, the answer is Option A.