What is the difference between independent and mutually exclusive projects?

What is the difference between independent and mutually exclusive projects?

What is the difference between independent and mutually exclusive projects? Independent projects: if the cash flows of one are unaffected by the acceptance of the other. Mutually exclusive projects: if the cash flows of one can be adversely impacted by the acceptance of the other.

What are mutual exclusive projects?

Mutually Exclusive Projects is the term which is used generally in the capital budgeting process where the companies choose a single project on the basis of certain parameters out of the set of the projects where acceptance of one project will lead to rejection of the other projects.

Which project should be accepted if they are independent?

The decision rule for independent projects is to accept all projects with a positive NPV. For mutually exclusive projects, accept the project with the highest positive NPV.

Why can two events that are mutually exclusive never be independent?

If two events are mutually exclusive then they do not occur simultaneously, hence they are not independent.

How do you compare mutually exclusive projects?

The equivalent annual annuity approach is one of two methods used in capital budgeting to compare mutually exclusive projects with unequal lives. The EAA approach calculates the constant annual cash flow generated by a project over its lifespan if it was an annuity.

How do you choose between mutually exclusive projects?

If considering mutually exclusive options, a company must weigh the opportunity cost, or what it would be giving up by choosing each option. The time value of money (TVM) is often considered when deciding between two mutually exclusive choices.

Which project should be accepted if they are mutually exclusive?

Mutually exclusive projects: If the NPV of one project is greater than the NPV of the other project, accept the project with the higher NPV. If both projects have a negative NPV, reject both projects.

Which project or projects should be accepted if they are mutually exclusive?

In case of mutually exclusive projects, the project with highest net present value or the highest IRR or the lowest payback period is preferred and a decision to invest in that winning project exclused all other projects from consideration even if they individually have positive NPV or higher IRR than hurdle rate or …

Are mutually exclusive events always independent?

How do you rank mutually exclusive projects and make choices?

What is independent project?

Independent project. A project whose acceptance or rejection is independent of the acceptance or rejection of other projects.

Projects are independent if the cash flows of one are not affected by the acceptance of the other. Conversely, two projects are mutually exclusive if acceptance of one impacts adversely the cash flows of the other; that is, at most one of two or more such projects may be accepted.

What are mutmutually exclusive projects?

Mutually Exclusive Projects are usually referred to projects undertaken as a part of capital budgeting activities wherein companies choose project/investments using certain parameters/criteria to find out its viability.

What is an independent project?

A Project whose cash flows have no impact on the acceptance or rejection of other projects is termed as Independent Project (not mutually exclusive). Thus, all such Projects which meet this criterion should be accepted.

What is the difference between mutually exclusive event and independent event?

Difference Between Mutually Exclusive and Independent Events The difference between mutually exclusive and independent events is: a mutually exclusive event can simply be defined as a situation when two events cannot occur at same time whereas independent event occurs when one event remains unaffected by the occurrence of the other event.