1. Decision trees:

a. are an alternative to NPV analysis.

b. recognize that managers may need to react to unexpected future events.

c. are a way to adjust the discount rate to allow for uncertainty.

d. lay out the different steps in preparing the capital budget.

2. If a firm doubled its level of fixed costs but maintained its operating leverage, then one explanation may be that:

a) depreciation expense increased to offset the increase.

b) sales revenues declined and the proportion of variable costs doubled.

c) pretax profits decreased.

d) sales revenue also doubled and the proportion of variable costs did not change