Lessons

- CFA Level 2: Corporate Finance Part 1 – Introduction
- Introduction to Capital Structure and Leverage
- Introductory Capital Budgeting Remarks
- Expansion Projects vs. Replacement Projects and Cash Flows
- Impacts of Depreciation Method Choice on Capital Budget Analysis
- Inflation and Capital Budgeting
- Mutually Exclusive Capital Projects with Unequal Lives
- Equivalent Annual Annuity (EAA) Approach
- Least Common Multiple of Lives Approach
- Stand Alone Risk and Capital Projects
- CAPM and a Capital Project’s Discount Rate
- Capital Projects and Real Options
- Common Pitfalls in Capital Budgeting
- Capital Budgeting Alternatives to NPV and IRR Analysis
- Modigliani-Miller and Capital Structure Theory
- Evaluating Capital Structure Policy
- International Differences in Financial Leverage
- Dividend and Share Repurchase Policies
- Factors Affecting Corporate Dividend Policy Decisions
- Signals from Dividend Policies

# Mutually Exclusive Capital Projects with Unequal Lives

- 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. In this situation, the projects are considered to be mutually exclusive.
- Analyzing mutually exclusive projects can be complicated when the projects have unequal lifetimes and simply choosing the project with the highest NPV can lead to an incorrect decision.
**TNOCF and Mutually Exclusive Projects:**Note that mutually exclusive projects exclude terminal year non-operating cash flows; the assumption is that the projects will be repeated in perpetuity.- There are two methods for choosing between mutually exclusive projects with unequal lives:

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