Explain the following terms as they relate to capital investment/budgeting decisions: a. Erosion b. Synergy c....

Explain the following terms as they relate to capital investment/budgeting decisions:
a. Erosion
b. Synergy
c. Decision Trees

Expert Solution

1. Erosion means the deduction in the value of the investment due to various kinds of systematic and unsystematic risk. Erosion will be defined as the reduction in the value of the overall Investments.

It is the value of negative yields in respect of various Investments

2. Synergy means that when two companies are merging with one another then there will be forming additional benefits for each other and they will just not be merging on the books of accounts front or financial front ,they will be creating excess opportunities for each one of them like they can increase the market share of each company and they can also increase the customer base.

these additional increment in the value of the company due to mergers are known as synergy

3. Decision trees are probability based trees which are considered while making decision regarding occurence of the probability of various events.

decision trees are helpful in making decisions regarding various investment through tranches and then it is decided whether to invest or not.

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