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decision tree

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Definition of decision tree

Decision Tree Image 1

decision tree

Diagram of sequential decisions and possible outcomes.


Decision tree

Method of representing alternative sequential decisions and the possible outcomes from these decisions.



Related Terms:

Asset allocation decision

The decision regarding how an institution's funds should be distributed among the
major classes of assets in which it may invest.


Building a binomial tree

For a binomial option model: plotting the two
possible short-term price-changes values, and then the subsequent two values
each, and then the subsequent two values each, and so on over time, is known
as “building a binomial tree.” See Binomial model.


capital budgeting decision

decision as to which real assets the firm should acquire.


decision making

the process of choosing among the alternative
solutions available to a course of action or a problem
situation



decision variable

an unknown item for which a linear programming
problem is being solved


financing decision

a judgment made regarding the method
of raising funds that will be used to make acquisitions; it
is based on an entity’s ability to issue and service debt and
equity securities


Decision Tree Image 2

financing decision

decision as to how to raise the money to pay for investments in real assets.


Financing decisions

decisions concerning the liabilities and stockholders' equity side of the firm's balance
sheet, such as the decision to issue bonds.


investment decision

a judgment about which assets will be
acquired by an entity to achieve its stated objectives


Investment decisions

decisions concerning the asset side of a firm's balance sheet, such as the decision to
offer a new product.


make-or-buy decision

a decision that compares the cost of
internally manufacturing a component of a final product
(or providing a service function) with the cost of purchasing
it from outside suppliers (outsourcing) or from another
division of the company at a specified transfer price


Managerial decisions

decisions concerning the operation of the firm, such as the choice of firm size, firm
growth rates, and employee compensation.


Mutually exclusive investment decisions

Investment decisions in which the acceptance of a project
precludes the acceptance of one or more alternative projects.


outsourcing decision

see make-or-buy decision


preference decision

the second decision made in capital project evaluation in which projects are ranked according to their impact on the achievement of company objectives


Decision Tree Image 3

screening decision

the first decision made in evaluating capital
projects; it indicates whether a project is desirable based
on some previously established minimum criterion or criteria
(see also preference decision)


Security selection decision

Choosing the particular securities to include in a portfolio.



special order decision

a situation in which management must determine a sales price to charge for manufacturing or service jobs outside the company’s normal production/service market


Street

Brokers, dealers, underwriters, and other knowledgeable members of the financial community; from
Wall Street financial community.


Street name

Describes securities held by a broker on behalf of a client but registered in the name of the Wall Street firm.


Wall Street

Generic term for firms that buy, sell, and underwrite securities.


Wall Street analyst

Related: Sell-side analyst.



 

 

 

 

 

 

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