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Using everything you know about capital budgeting, if the two projects are mutually exclusive, which project...

Using everything you know about capital budgeting, if the two projects are mutually exclusive, which project or projects should the firm undertake? Explain in full. The answer must be complete (mini paragraph). Substantiate with numbers.

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Expert Solution

MUTUALLY EXCLUSIVE PROJECTS MEANS ONLY ONE OF THE PROJECT IS TO BE SELECTED.

SO IT IMPLIES CAPITAL RATIONING.

SO WE HAVE TO SELECT THE BEST PROJECT & NPV IS THE BEST METHOD FOR SELECTING THE PROJECT.

WHY NPV ?

BECAUSE THIS IS THE ONLY PROJECT WHICH USES TIME VALUE CONCEPT. SO OUT OF ALL METHODS AVAILABLE, NPV IS THE ONLY BEST.

EXAMPLE : SEE EXCEL SHEET

jeff jeffy answered 1 year ago
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