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Which technique is used to deal with the choice between mutually exclusive projects which have different lives?
Equivalent Annual Costing (EAC) if Liability, or
Equivalent Annual Cash-Flow (EACF) if investment. We calculate the Present Value of the project by discounting back each cash-flow from each year at the discount rate, then multiple the sum of these PVs by the respective annuity factor(which will be different for each mut-exlu project). We choose the project that has the favourable EAC/EACF.
What else can I help you with?
What are mutually exclusive projects?
Mutually exclusive projects means that the acceptance of one project eliminates the others fromconsideration. Projects are said to be mutually exclusive when tehy cannot be undertaken simultaneously.
Non mutually exclusive projects?
Non mutually exclusive projects, or independent projects, are projects that can be taken on alongside other projects. They don't interfere with and won't be interfered by other projects' goals.
Examples of mutually exclusive projects?
The simplest way to explain a mutually exclusive project would be in terms of real estate building. If you were debating whether to build a one or two story house on a plot of land, that is a mutually exclusive project because you cannot build both houses on one plot.
IWhat is the difference between independent project and mutually exclusive project?
Mutually exclusive is the situation in which only one of two projects designed for the same purpose can be accepted and independent projects is a project whose feasibility can be assessed without consideration of any others.
What is the difference between independent and mutually exculusive projects with normal and nonnormal cash flows?
Independent projects are those which are not related or dependent on any other projects while in mutually exclusive projects if one project is selected other project automatically discards
Advantages and disadvantages of internal rate of return?
it can give wrong / misleading answers especially where two mutually-exclusive projects are to be appraised
Are construction projects which have a common support purpose but are not mutually dependent funded as separate projects?
yes
When Projects are mutually exclusive which project should be selected using npv and risk level?
Problems with project ranking: 1. Mutually exclusive projects of unequal size (the size disparity problem) - the NPVdecision may not agree with the IRR or PI. Solution: select the project with the larges NPV (not IRR). 2. The time disparity problem with mutually exclusive projects - NPV and PI assume cash flows are reinvested at the required rate of return for the project. IRR assumes cash flows are reinvested at the IRR. NPV decision may not agree with the IRR. Solution: select the project with the largest NPV. A good method to evaluate and rank project better is to use the Equivalent Annual Annuity (EAA) method. This is like calculating for PMT when doing TVM. It simply means, you will be getting that amount as an inflow each year or period. Therefore, you would want to choose the highest figure.
What is the advantages and disadvantages of profitability index?
Profitability Index AdvantagesTells whether an investment increases the firm's valueConsiders all cash flows of the projectConsiders the time value of moneyConsiders the risk of future cash flows (through the cost of capital) Useful in ranking and selecting projects when capital is rationedDisadvantagesRequires an estimate of the cost of capital in order to calculate the profitability indexMay not give the correct decision when used to compare mutually exclusive projects
What are Mutually inclusive project?
Mutually inclusive projects are initiatives that share common goals or resources, allowing them to benefit from collaboration and interdependence. These projects often enhance each other's outcomes by leveraging shared knowledge, skills, or funding. For example, two environmental conservation projects might work together to address biodiversity loss in a specific region, combining their efforts for greater impact. This approach fosters synergy, maximizing the effectiveness and efficiency of the projects involved.
What is oppritunity cost?
In the process of decision making between mutually exclusive projects any cost which is left due to selection of alternative project is called the opportunity cost. For Example: if a person select project a and have to loss 1000 due to selection of project a, or if person select project b and loss 2000 due to it then project a has an opportunity cost of 1000 while project b has 2000.
What are the differences between profitability index and net present value?
The NPV and PI both consider the time value of money and result in the same accept or reject decision when considering an independent project. The main difference between the two is that the PI may be useful in determining which projects to accept if funds are limited; however, the PI may lead to incorrect decisions when considering mutually exclusive investments
