COST ACCOUNTING
CAPITAL BUDGETING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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One of the various alternative proposals must be chosen
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The nature of projects is different
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The nature of the project is the same
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There is no true choice
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Detailed explanation-1: -Mutually exclusive investments are a set of prospective capital investments, where the selection of one investment automatically excludes the other projects from being funded.
Detailed explanation-2: -Mutually exclusive projects are capital projects which compete directly with each other. For example, if a manager has to make a choice strictly between undertaking either project X or Y, but not both of them concurrently, then projects X and Y are said to be mutually exclusive.
Detailed explanation-3: -Independent projects are those not affected by the cash flows of other projects. Mutually exclusive projects, however, are different. If two projects are mutually exclusive, it means there are two options for accomplishing the same result.
Detailed explanation-4: -For example, assume a company has a budget of $50, 000 for expansion projects. If available Projects A and B each cost $40, 000 and Project C costs only $10, 000, then Projects A and B are mutually exclusive. If the company pursues A, it cannot also afford to pursue B and vice versa.