Mutually Exclusive Capital Projects with Unequal Lives
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- 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: