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Mutually exclusive projects are those that have the

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Unformatted text preview: e acceptance of one does not eliminate the others from further consideration. Mutually exclusive projects are those that have the same function and therefore compete with one another. The acceptance of one eliminates from further consideration all other projects that serve a similar function. For example, a firm in need of increased production capacity could obtain it by (1) expanding its plant, (2) acquiring another company, or (3) contracting with another company for production. Clearly, accepting any one option eliminates the need for either of the others. Unlimited Funds versus Capital Rationing The availability of funds for capital expenditures affects the firm’s decisions. If a firm has unlimited funds for investment, making capital budgeting decisions is quite simple: All independent projects that will provide an acceptable return can CHAPTER 8 capital rationing The financial situation in which a firm has only a fixed number of dollars available for capital expenditures, and numerous project...
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