What is the difference between independent and mutually exclusive projects?
What is the difference between independent and mutually exclusive projects? Independent projects: if the cash flows of one are unaffected by the acceptance of the other. Mutually exclusive projects: if the cash flows of one can be adversely impacted by the acceptance of the other.
How do you know if events are mutually exclusive or independent?
Two events are mutually exclusive if they can’t both happen. Independent events are events where knowledge of the probability of one doesn’t change the probability of the other.
What are the mutually exclusive projects?
Mutually exclusive projects are capital projects which compete directly with each other. For example, if a manager has to make a choice strictly between undertaking either project X or Y, but not both of them concurrently, then projects X and Y are said to be mutually exclusive.
Which projects should be accepted if they are independent?
An independent project is a project whose cash flows are not affected by the accept/reject decision for other projects [Bus]. If the independent Project meets the capital budgeting criteria and NPV exceeds zero, then they should be accepted.
Why can two events that are mutually exclusive never be independent?
If two events are mutually exclusive then they do not occur simultaneously, hence they are not independent. Thus, if event A and event B are mutually exclusive, they are actually inextricably DEPENDENT on each other because event A’s existence reduces Event B’s probability to zero and vice-versa.
How do you choose between mutually exclusive projects?
Net Present Value Decision Rules
- Independent projects: If NPV is greater than $0, accept the project.
- Mutually exclusive projects: If the NPV of one project is greater than the NPV of the other project, accept the project with the higher NPV. If both projects have a negative NPV, reject both projects.
Why two events Cannot be mutually exclusive and independent?
Can an event be neither independent or mutually exclusive?
So mutual dependence is prerequisite for mutual exclusivity therefore mutually exclusive events can’t be independent.
Which project or projects should be accepted if they are mutually exclusive?
In case of mutually exclusive projects, the project with highest net present value or the highest IRR or the lowest payback period is preferred and a decision to invest in that winning project exclused all other projects from consideration even if they individually have positive NPV or higher IRR than hurdle rate or …
What is P A intersection B?
P(A∩B) is the probability of both independent events “A” and “B” happening together, P(A∩B) formula can be written as P(A∩B) = P(A) × P(B), P(A∩B) = Probability of both independent events “A” and “B” happening together. P(A) = Probability of an event “A” P(B) = Probability of an event “B”