interdependent and mutuallyexclusiveprojects is that the independent project’s cash flows are not affected by the acceptance of the other, although the mutuallyexclusive can be adversely impacted by the acceptance of the other. the differencebetween normal and no normal cash flow stream projects occurs in...
process of comparing mutuallyexclusive alternatives. These are the differencesbetween alternatives, and the minimum attractive rate of return, and the do nothing alternative.
Forming Mutuallyexclusive alternatives
Engineering proposals can be independent, mutuallyexclusive, or contingent...
project.
Question b
What is the differencebetweenindependent and mutuallyexclusiveprojects? Between normal and non-normal projects?
Independentprojects mean a company can select one or both of the projects as long as they meet minimum profitability. This is because the projects do not compete...
decisions?
B. What is the differencebetweenindependent and mutuallyexclusiveprojects? Betweenprojects with normal and nonnormal cash flows?
C. (1) Define the term net present value (NPV). What is each project’s NPV?
C. (2) What is the rationale behind the NPV method? According to...
the differencebetweenindependent and mutuallyexclusiveprojects?
An independentproject is one in which accepting or rejecting one project does not affect the acceptance or rejection of other projects under consideration. No relationship exists between the cash flows of one project and...
independent.
If they are mutuallyexclusive?
You would only accept Project S as it has the higher NPV of $19,984.97 versus L which has a lower NPV of $18,782.87 if the franchises are mutuallyexclusive.
(3*)* What is the differencebetween the regular and discounted payback periods?
The...
Understanding Financial Management: A Practical Guide
Guideline Answers to the Concept Check Questions
Chapter 8
Capital Budgeting
1.
What is the differencebetweenindependent and mutuallyexclusiveprojects?
An independentproject is one in which accepting or rejecting one project does...
Capital Budgeting
What are the characteristics of mutuallyexclusive capital budgeting projects that may cause the net present value and internal rate of return methods to rank the projects differently? How would this difference impact your recommendations and/or decision-making process within...
subjective risk assessments of each franchise, and concluded that both franchises have risk characteristics that require a return of 10%. You must now determine whether one or both of the franchises should be accepted.
1. What is the differencebetweenindependent and mutuallyexclusive...
.
Disadvantages:
Give you conflicting answers when compared to NPV for mutuallyexclusiveprojects.
Multiple IRR for non-normal cash flows (when the project operates at a loss or the company needs to contribute more capital)
Conflicts between NPV and IRR Methods
For an independentproject that the...
feasibility of the project.
C. Classification of Investment Projects
Capital budgeting projects can be broadly classified into three types: (1) independentprojects; (2) mutuallyexclusiveprojects; and (3) contingent projects.
IndependentProjectsProjects are independent when their cash flows...
of the NPV approach, and it is also easy to see why both projects should be accepted if they are independent and why L should be chosen if they are mutuallyexclusive.
Why is the NPV regarded as being the primary capital budgeting decision criterion? What’s the differencebetween “independent...
differencebetweenindependent and mutuallyexclusiveprojects? Solution: Projects are independent if the cash flows of one are not affected by the acceptance of the other. Conversely, two projects are mutuallyexclusive if acceptance of one impacts
adversely the cash flows of the other; that is, at...
of breakeven analysis: the payback period tells us when the project will break even in a cash flow sense. With a required payback of 2 years, franchise S is acceptable, but franchise L is not. Whether the two projects are independent or mutuallyexclusive makes no difference in this situation...
.
2conflicts betweenprojects can result from magnitude and timing of cash flows
3. the greater the differencebetween timing and size of cash flows, the more likely conflicts will arise
Against: NPV= (17301) and IRR= 16.20%When projects are independent and the returns are higher than the hurdle...
both.
Not Both.
Independent
Taking one project does
not affect the taking of
another project.
Ex: If you buy machine A,
you can also buy machine
B, or not.
Ex: Cash flows from
Project A do not affect
cash flows for Project B.
Projects that are Not
MutuallyExclusive...
IS POSITIVE), OR IF THE CALCULATED RATE OF RETURN (THE IRR) IS HIGHER THAN THE PROJECT COST OF CAPITAL, ACCEPT THE PROJECT.
B. WHAT IS THE DIFFERENCEBETWEENINDEPENDENT AND MUTUALLYEXCLUSIVEPROJECTS? BETWEENPROJECTS WITH NORMAL AND NONNORMAL CASH FLOWS?
ANSWER: [SHOW S11-4 THROUGH S11-7...
THAN THE PV OF THE OUTFLOWS (THE NPV IS POSITIVE), OR IF THE CALCULATED RATE OF RETURN (THE IRR) IS HIGHER THAN THE PROJECT COST OF CAPITAL, ACCEPT THE PROJECT.
B. WHAT IS THE DIFFERENCEBETWEENINDEPENDENT AND MUTUALLYEXCLUSIVEPROJECTS? BETWEENPROJECTS WITH NORMAL AND NONNORMAL CASH FLOWS...
method, we learn what it measures, its computation, and how we use it to make decisions on independent and mutuallyexclusiveprojects. We also develop four criteria, which are based on the factors that determine value, to evaluate each capital budgeting method in the context of the objective of a firm...