Midterm Exam (2).docx

Midterm Exam (2).docx - FIN 413 Corporate Finance Midterm...

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FIN 413 Corporate Finance – Midterm Exam 1 Discuss the three (3) elements of the decision process. (10 points) There are three elements of the decision process. The first element is a series of perceived alternatives. This is the first necessary condition to make a decision. The presence of a substitute is necessary because there is no need to make a decision if there is no alternative. This condition can be further stipulated that not only must there be alternatives, but must also be considered by potential decision makers. There are two interest point in this element. First interest point is we talk of decision situation and potential decision makers because only the presence of perceived alternatives does not necessarily mean that a decision will be made. For example, potential decision makers may be delayed, so the passage of time allows him to get rid of the decision-making situation, only one possible way of action, no other choice, such as death is one of the example of the passage of time removing a decision situation from an individual. The second point of interest is that we do not state that all possible alternatives are perceived; if so, we can call it the best decision. Given the specific decision situation to exit, we are considering how the decision to exit. At present, is this decision really true or not optimal. The second element is an expectation that these alternatives are not all equally desirable in terms of attaining an objective held by the decision-maker. This is the second necessary condition for decision situation arises from the fact that the actual process of making a decision is liable to cause the decision-maker to expend both time and effort. Rationally decision makers will be reluctant to do so unless they expect certain perceptual alternatives to be recommended to others to achieve the desired goal. Therefore, the existence of the goal is the second necessary condition: there is no purpose for making a decision without it. The third element of the decision process is a common value based that related to the objective by which the alternatives may be compared. This is the valuation of alternatives that two necessary conditions provide the rationale for making decision. If the decision maker does not perceive alternatives, or sees no reason to choose between the alternatives if they are perceived, then no decision will be made. But once these conditions do exist, a decision cannot actually be made until values are placed upon the alternatives. In fact, we can assert that the only reason why any alternative course of action is ever be related to the objective involved in making the decision and the way in which that objective is expressed. Suppose there were three alternative routed which is we valued by time, distance and scenic beauty. We obviously could not make a decision because the alternatives have different measures or yardsticks of value and so cannot be compared.
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