Mutually Exclusive Projects
Mutually Exclusive Projects are a set of projects from which at most one will be accepted. For instance, a combination of projects which are to carry out the same task. Therefore, when preferring among "Mutually Exclusive Projects" more than one project may satisfy the Capital Budgeting criterion. All the same, only one, i.e., the most beneficial project can be accepted.
Mutually exclusive projects are two projects in which the taking up of one project keeps the taking up of the other project. It is significant for a fund manager to rank these mutually exclusive project established on the return. These rankings are significant while making investment decisions. by and large fund managers uses net present value and internal rate of return method to rank the projects. In most of the cases these two methods break down miserably. Therefore it turns difficult for the investor to make decisions. The primary problem in it is the lack of thoughtfulness of the time period in these methods. Time period plays a critical role in the investment decisions. For the ground that the time period is not believed in the above two method ranking established on the above two methods often end up in a failure. Mathematically it can stated that the varying cash inflow of the various investments are the primary ground for the not substitute the time factor in the calculation.
Mutually exclusive projects are to a great deal a worry to the investors. They have to determine from the two projects with same growth rate and cash inflow. Investor cannot invest in both the projects. Taking up of chance in one project prevent the chance in the second project.
Some of the illustrations of mutually exclusive investments are,
ñ Investment in project with a very high investment value. The investors cannot invest in both the investment since of the higher amount being absorbed in either of the investments.
ñ Conforming to the law some of the investments have been made mutually exclusive. The government have formed few investment alternatives as mutually exclusive. It is for the easy monitoring and governance purpose.
ñ The two company themselves would barricade the investment in both the company. This may be due to some competition or other such business aspects.
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