B) selecting one would automatically eliminate accepting the other. In other words, mutually exclusive events are called disjoint events. Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: Year Project 1 Cash Flow Project 2 Cash flow Year Project 1 Cash Flow Project 2 Cash Flow 0 −$4.0 ? Project S has an IRR of 20% while Project L’s IRR is 15%. To do so, you must organize these answers in a way that is mutually exclusive and collectively exhaustive (sometimes written as “mutually exclusive and … Project A costs. The correct answer is B. For a more comprehensive comparison, companies use the net present value (NPV) and internal rate of return (IRR) formulas to mathematically determine which project is most beneficial when choosing between two or more mutually exclusive options. The concept of mutual exclusivity is often applied in capital budgeting. Two projects are considered to be mutually exclusive if the projects perform the same function. Mutually exclusive projects are projects in which acceptance of one project excludes the others from consideration. ... Two projects being considered by a firm are mutually exclusive. B. selecting one would automatically eliminate accepting the other. The first has a A project whose acceptance precludes the acceptance of one or more alternative projects is referred to as _____. A passage in Teresa of Avila’s work is a sign of this, as are the difficulties the Jesuit Balthasar Alvarez … Two mutually exclusive projects are being considered: Project Uno has a first cost of $12,500, creates $5000 in annual savings, and has a salvage value of $2000 at the end of its 4 years useful life. A clear example is the set of outcomes of a single coin toss, which can result in either heads or tails, but not both. 25 Votes) Mutually exclusive events cannot happen at the same time. b. Shakespeare’s phrase “ To be, or not to be: that is the question ” is an example of two mutually exclusive events. It might be that a business has requested bids on a project and a number of bids have been received. C. Pages 95. Neither project will be repeated again in the future after their current lives are complete. It generates the following cash flows. Two mutually exclusive projects are being considered and oneof them must be selected. Two mutually exclusive projects are being considered. Example. Project T requires an initial investment of $100,000 and the produces annual cash flows of $30,000, $40,000, and $50,000. Mutually exclusive projects are also assumed to be designed to fulfill the same task, and choosing one affects the cash availability for other projects. Although a convergence between theology and mystical literature can be observed in recent years, it is not always very clear what the relationship between the two is. This is part 1 of our 4-part series on MECE thinking — part 1, part 2, part 3, and part 4. Independent and mutually exclusive do not mean the same thing.. Independent (or non-mutually exclusive project) is favorable if the net present value is positive and/or IRR is higher than the hurdle rate and/or the payback period is shorter than a specific reference period. Usually they need to choose from a number of mutually exclusive alternatives. The remaining entries are: CF 1 = 1.7; CF 2 = 3.2; CF 3 = 5.8; I = 9%; CPT → NPV = $8.73. Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: Year Project 1 Cash Flow Project 2 Cash flow Year Project 1 Cash Flow Project 2 Cash Flow 0 −$4.0 ? 49. When two mutually exclusive projects are being compared, explain why the short-term project might be higher ranked under the NPV criterion if the cost of capital is high whereas the long-term project might be deemed better if the cost of capital is low. Year Cash Flow Cash Flow. Finance. The total cash inflow is expected to be $22,000 or an average of $4,400 per year. Assume that the economy is enjoying a strong boom, and as a result interest rates and money costs generally are relatively high. Transcribed Image Text: Batelco Inc. is considering two mutually exclusive projects A and B. Since the plant’s expansion is top-priority it was considered an independent project that will be approved as long as the net present value is higher than zero. d. $21,378. A and C are incorrect because in both instances, two projects being invested in concurrently. Influence: Occurrence of one event will result in the non-occurrence of the other. The net present value method is based on two assumptions. Share With. Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: Year Project 1 Cash Flow Project 2 Cash flow Year Project 1 Cash Flow Project 2 Cash Flow 0 −$4.0 ? 1. Project Dos has a first cost of $25,000, creates $8000 in annual savings, and has a salvage value of $4000 at the end of its 8 years useful life. Ratings 100% (3) This preview shows page 18 - 21 out of 95 pages. Year: Cash Flow: 0: 1: 15,000: 2: 17,000: 3: Two events are mutually exclusive if they cannot occur at the same time. Mutually exclusive events also occur regularly in corporate finance. 35.3355..35. NO: Two events are mutually exclusive if they cannot both occur. D) None of the above. Two projects are considered to be mutually exclusive if a) the projects perform the same function. Consider an investment with an initial cost of $20,000 and is that expected to last for 5 years. The economic life of the project A will be 6-Year's and Project B will be 5 years, and both projects carry same risk, Batelco Inc uses a discount rate of 12%. b) an independent project. $75,000 and is expected to generate $48,000 in year one and $45,000 in year two. If the required rate of return is greater than 0% and the projects are mutually exclusive Projects A and B have first costs of $6,500 and $17,000, respectively. Corporate Finance – Learning Sessions. Simply multiply the two chances together to get the full chance. When events are mutually exclusive, their probabilities add up to the probability that one event (or the other) occurs. Planning to build a warehouse and a retail outlet side by side B. b) selecting one would automatically eliminate accepting the other. For example, the probability of pulling one card from a deck and it being a Jack and a Queen is zero (impossible). It cannot be both at the same time. For mutually exclusive events, the probability of A or B occurring is equal to the probability of A occurring plus the probability of B occurring. For example: when tossing a coin, the result can either be heads or tails but cannot be both. Option B accurately describes two mutually exclusive projects. C) Both a and b. In this situation, the projects are considered to be mutually exclusive. Transcribed Image Text: Batelco Inc. is considering two mutually exclusive projects A and B. 92. 0 -$50,000 1 $15,625 $0 2 $15,625 $0 3 $15,625 $0 4 $15,625 $0 5 $15,625 $99,500 NPV = [Answer here] [Answer here] IRR = [Answer here] [Answer here] If mutually exclusive projects that are being analyzed don’t have the same lifetimes (for example, one investment has a length of 8 years and the other alternative example has the length of 12 years), we have to be careful using the parameters that we have learned so far. Given a choice between competing projects, you should accept the one that adds most to shareholder wealth. That is, we can choose either Project S or Project L, or we can reject both, but we cannot accept both projects. (CSLO 5) True FalseUnconventional cash flows could be a cash flow stream that looks similar to a conventional cash flow stream except for a final negative cash flow. When dealing with mutually exclusive projects, the NPV and modified IRR methods always rank projects the same, but those rankings can conflict with rankings … 1 times 1 is 1, while 35 times 36 is 1,260. If two projects are mutually exclusive, it means there are two ways of accomplishing the same result. of or pertaining to a situation involving two or more events, possibilities, etc., in which the occurrence of one precludes the occurrence of the other: mutually exclusive plans. Companies often use capital budgeting to invest in future business growth. 1. For n mutually exclusive events the probability is the sum of all probabilities of events: P=p1+p2+⋯+p(n-1)+pn. Question. The life of the track is expected to be 80 years, and the… PQR, Inc. has $40 million at its disposal and the management is considering the following projects for investment. When dealing with independent projects, discounted payback (using a payback requirement of 3 or less years), NPV, IRR, and modified IRR always lead to the same accept/reject decisions for a given project.. b. The remaining entries are: CF 1 = 1.7; CF 2 = 3.2; CF 3 = 5.8; I = 9%; CPT → NPV = $8.73. e.g if we flip a coin it can only show a head OR a tail, not both.. Two events are independent if the following are true: P(A|B) = P(A); P(B|A) = P(B); P(A AND B) = P(A)P(B); Two events A and B are independent events if the knowledge that one occurred does not affect the chance the other occurs. The cost of capital is 10%. You wouldn't want to accept two bids for the same project. In logic and probability theory, two events (or propositions) are mutually exclusive or disjoint if they cannot both occur at the same time. Project A has net annual ... Two alternatives are being considered for recovering aluminum from garbage. Project A requires an initial investmentof $500,000, annual O&M costs of 200,000, and will have auseful life of 8 years. Now assume that Projects S and L are mutually exclusive rather than independent. d) a contingent project. Two projects being considered are mutually exclusive and have the following projected cash flows: Project A Project B Year Cash Flow Cash Flow 0 -$50,000 -$50,000 1 15,625 2 15,625 3 15,625 4 15,625 5 15,625 99,500 If the required rate of return on these projects is 10 percent, which would be chosen and why?0 0 0 0 a. 0 00 0 a. Solution. Answer to Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: Based only on the information given, which of the tw | SolutionInn. For example, the outcomes of two roles of a fair die are … Two mutually exclusive projects are being considered. View full document. 1 $3.0 $1.7 2 $5.0 $3.2 3 $2.0 $5.8 The crossover rate of the two projects’ NPV profiles is 9%. Two projects are considered to be mutually exclusive if A) the projects perform the same function. b) Which project should be selected if NPV were used at 10% interest? In other words, add a few more balls, and you'll see you've got a … Featured. The cost of capital is Evaluating Mutually Exclusive Projects. Two projects are considered to be mutually exclusive if the projects. See Page 1. Since by definition the crossover rate produces the same NPV for both projects, we know that both projects should have an NPV = $4.51. What is mutually exclusive projects? Which one of the following is the best example of two mutually exclusive projects? Two events are said to be independent, when the occurrence of one event cannot control the occurrence of other. If one scenario occurs it is not possible for the others to take place. $42,000. Definition: Mutually exclusive is a situation where two or more scenarios can’t happen simultaneously. The nature of the project alternative makes two alternatives mutually exclusive. Project A requires an initial investmentof $500,000, annual O&M costs of 200,000, and will have auseful life of 8 years. Two projects being considered are mutually exclusive and have the following projected cash flows: Year Project A Cash Flow Project B Cash Flow 0 -$50,000 -$50,000 1 15,625 0 2 15,625 0 3 15,625 0 4 15,625 0 5 15,625 99,500 If the required rate of return on these projects is 10 percent, which would be chosen and why? $18,097. Question: Question 12 Two projects are considered to be mutually exclusive if selecting one would automatically eliminate accepting the other they are also independent they share a common ownership they have similar cash flows This problem has been solved! Independent event:- the occurrence of one event does not affect the occurrence of the others e.g if we flip a coin two times, the first time may show a head, but this does not guarantee that the … The conflict either arises due to relative size of the project or due to the different cash flow distribution of the projects. The reduction in cost is considered equivalent to increase in revenues and should, therefore, be treated as cash inflow in capital budgeting computations. Two projects being considered are mutually exclusive and have the following projected cash flows: Project A Project BYear Cash Flow Cash Flow 0 -$50,000 -$50,0001 15,625 2 15,6253 15,625 4 15,625 5 15,625 99,500 If the … The net present value for Project B is: a. A. Get the detailed answer: Two mutually exclusive projects are under consideration. Both a and b Two projects are considered to be mutually exclusive if the project …. a. Once two projects are mutually exclusive, you cannot invest in both at the same time. c) a dependent project. 8.Two projects being considered are mutually exclusive and have the following cash flows: Year Project A Project B 0 -$50,000 -$50,000 1 15,625 0 2 15,625 0 3 15,625 0 4 15,625 0 5 15,625 99,500 If the required rate of return on these projects … Two projects are considered to be mutually exclusive if the projects perform the same function and selecting one would automatically eliminate accepting the other. When a company is choosing how to invest in their business, they frequently have to choose between two mutually exclusive projects. XYZ Company is planning to invest in a plant. Uploaded By SargentStrawCrow9027. Practice question: Two projects are considered to be mutually exclusive if A. the projects perform the same function. Notes. Select one: a. Buying sufficient equipment to manufacture both desks and chairs simultaneously C. Using an empty warehouse for storage or renting it entirely out to another firm D. Mutually Exclusive Events Independent Events; Meaning: Two events are said to be mutually exclusive, when their occurrence is not simultaneous. 0 ($100,000) ($100,000) 1 39,500 0. a) a mutually exclusive project. In those situations, the NPV method should be used. Project B costs $80,000 and is expected to generate $34,000 in year one, $37,000 ... Let us consider two projects: C and D, both need $10 million investment each. The projects have the same NPV at the 12% current WACC. 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. P(A and B) = 0 ... although they should not be considered independent, as independent events have no significance on the viability of other options. Development Process. Each project requires an initial investment as presented in the below table. 6) Project H requires an initial investment of $100,000 and the produces annual cash flows of $50,000, $40,000, and $30,000. Two projects are considered to be mutually exclusive if both selecting one would automatically eliminate accepting the other and the projects perform the same function. (Events of measure zero excepted.) False 2) A capital investment project is considered independent if its objective is the same as the. Project B requires an initial investment of$800,000, annual O&M costs of 150,000, and will have a usefullife of 9 years. (CSLO 5) Toggle navigation Menu . True b. Solution for Four mutually exclusive projects are being considered for a new two-mile jogging track. It is possible for a firm to face a scenario where multiple capital projects show a positive net present value, but only enough resources are available to fund one of them. Independent Events. Year Project A Project B 0 -$5,000 -$9,000 1 $2,750 $1,000 2 $2,750 $3,00 ... and the expected revenues from this opportunity are given in the table and are considered to be of average risk. 2 39,500 0. Two mutually exclusive projects are under consideration. Two projects being considered by a firm are mutually exclusive and have the following projected cash flows: Project A Project B. 1) When two mutually exclusive projects are being evaluated, only one of the two projects can be chosen, even if they both have positive NPVs, since the two projects will have the same function or objectives for the company. Mutually Exclusive: "Mutually exclusive" is a statistical term describing two or more events that cannot occur simultaneously. (E) a. See the answer Show transcribed image text Expert Answer Terms in this set (20) Two projects are considered to be mutually exclusive if a) the projects perform the same function. Two projects are considered to be contingent projects if the acceptance of one project is dependent on the acceptance of the other A construction firm is evaluating two value-adding projects. A central tenet of structuring your problem solving is your considering all the possible answers to your question exactly once. Mutually Exclusive Capital Projects with Unequal Lives. Let us suppose that from some investment project the firm expects to obtain net revenues of R] in the 1st year, R 2 in the 2nd year,…, R n in the nth year. 1 $3.0 $1.7 2 $5.0 $3.2 3 $2.0 $5.8 The crossover rate of the two projects’ NPV profiles is 9%. Mutually exclusive events may also be considered independent events. Independent events have no impact on the viability of other options. For a basic example, consider the rolling of dice. Project A ||$5,000 $2,750 $2,750 $2,750 $2,750 $2,750 Project B |-$9,000 $1,000 $3,000 $5,000 $7,000 $9,000 Year 1 2 4 a) Which project should be selected if the simple payback method is used to make the determination? The expected cash flows in years 1 and 2 are $5,000, in years 3 and 4 are $5,500 and in year 5 is $1,000. ... MIRR does not always lead to the same decision as NPV when mutually exclusive projects are being considered. There-exists a potential problem though – the expected life of the first project is one year and the expected life of the second project is three years. True False 4.2/5 (232 Views . Or. The identified and considered alternatives for the project become potential solutions to be analyzed later as a part of the Feasibility Study. Decisions involving two mutually exclusive projects that differ in scale (size) may have MIRRs that conflict with NPV. Two projects being considered are mutually exclusive and have the following projected cash flows: Project A Project B Year Cash Flow Cash Flow 0 -$50,000 -$50,000 1 $15,625 $65,341 2 $15,625 $8,392 3 $15,625 $7,321 4 $95,625 $678 If the required rate of return on these projects is 10 percent, which would be chosen and why? The WACC for two mutually exclusive projects that are being considered is 12%. 1 $3.0 $1.7 2 $5.0 $3.2 3 $2.0 $5.8 The crossover rate of the two projects’ NPV profiles is 9%. Two mutually exclusive projects are being considered and oneof them must be selected. If an event is mutually exclusive, the probability of two of the possible results occurring is 0. Project B requires an initial investment of$800,000, annual O&M costs of 150,000, and will have a usefullife of 9 years. B. selecting one would automatically eliminate accepting the other. This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here! Pitfall 1: Mutually Exclusive Projects. Neither project will be repeated We have seen that firms are seldom faced with take-it-or-leave-it projects. Let us also suppose that the initial cost of the project is C 0 and apart from this, the firm would have to spend on the project an amount of Q in the 1st year, C 2 in the second year,…, C n in the nth year. Mutually exclusive projects refers to a set of projects, of which only a single one can be accepted for execution by a company or organization. The economic life of the project A will be 6-Year's and Project B will be 5 years, and both projects carry same risk, Batelco Inc uses a discount rate of 12%. Two projects are considered to be mutually exclusive if the projects perform the same function and selecting one would automatically eliminate accepting the other. 3) Zellars, Inc. is considering two mutually exclusive projects, A and B. Example of NPV vs IRR. Two projects being considered are mutually exclusive and have the following projected cash flows: Project A Project BYear Cash Flow Cash Flow 0 -$50,000 -$50,0001 15,625 2 15,6253 15,625 4 15,625 5 15,625 99,500 If the required rate of return on these projects is 10 percent, which would be chosen and why? If there are two or more mutually exclusive projects (they are the projects where acceptance of one project rejects the other projects from concern) than in that case, IRR is not effective. Two events are said to be mutually exclusive if they can’t occur at an equivalent time or simultaneously. Each project requires an initial investment as presented in the below table. Since by definition the crossover rate produces the same NPV for both projects, we know that both projects should have an NPV = $4.51. Meanwhile, a combination of two or more project alternatives creates a new project alternative. 34. selecting one would automatically eliminate accepting the other. In the coin-tossing example, both outcomes are, in theory, collectively exhaustive, which means that at least one of the outcomes … Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. If two events are considered disjoint events, then the probability of both events occurring at an equivalent time is going to be zero. c. $34,238. Two projects being considered are mutually exclusive and have the following projected cash flows: (Compute both NPV and IRR). Two mutually exclusive projects are being considered: Project Uno has a first cost of $12,500, creates $5000 in annual savings, and has a salvage value of $2000 at the end of its 4 years useful life. That there has been a gap between the two, for several centuries, is obvious. See Page 1. 49. This of course means mutually exclusive events are not independent, and independent events cannot be mutually exclusive. View the full answer. 184 part two Value. Transcribed image text: Two projects are considered to be mutually exclusive if: Select one: A. the projects perform the same function. Mutually exclusive projects, however, are different. In this case, if the A and B were mutually exclusive events, then you are correct, we would need for P (A)+P (B)=80. Project Dos has a first cost of $25,000, creates $8000 in annual savings, and has a salvage value of $4000 at the end of its 8 years useful life. Question. Mutually exclusive event:- two events are mutually exclusive event when they cannot occur at the same time.
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