Question

4. What does it mean to say an investment is independent and not mutually exclusive?

Answer #1

Solution

Investments are said to be independent if the cash flows of one project is not affected by the acceptance of other.On the other hand, in case of mutually exclusive projects the acceptance of one project adversely impacts the cashflows of other.

Thus in other words,in case of independent projects any number of projects can be chosen from the chioices,while in case of mutually exclusive projects ,for example 2 mutually exclusive projects only 1 can be chosen out of the 2.

independent versus mutually exclusive projects?

What are independent and mutually exclusive projects? How can
you tell the difference?

Mutually exclusive events also independent.
True or False?

A) DO NOT calculate IRR for projects that are:
Conventional
Nonconventional
Independent
Mutually exclusive
B) What is the internal rate of return for this project?
Year
Cash Flows
0
-1,000,000
1
300,000
2
300,000
3
300,000
4
600,000

Prove: If A and B are mutually exclusive, and A and B are also
independent, then either A or B has probability zero.

Discuss the concepts of mutually exclusive events and
independent events. List several examples of each type of event
from everyday life.
If A and B are mutually exclusive events, does it follow that A
and B cannot be independent events? Give an example to
demonstrate your answer. Hint: Discuss an election where
only one person can win the election. Let A be the event that party
A's candidate wins, and let B be the event that party B's candidate
wins....

Two mutually exclusive investment opportunities require an
initial investment of $ 8million. Investment A then generates $
1.50 million per year in? perpetuity, while investment B pays $1.10
million in the first? year, with cash flows increasing by 3% per
year after that. At what cost of capital would an investor regard
both opportunities as being? equivalent?

What is meant by two mutually exclusive events? Give one example
of two mutually exclusive events and another example of two
mutually nonexclusive events.

Calculate and choose project/s assuming that these two projects
are
(1) mutually exclusive OR
(2) independent.
NPV (WACC 6%)
CFs Year
A
B
0
-2050
-4300
1
750
1500
2
760
1518
3
770
1536
4
780
1554

Two mutually exclusive investment opportunities require an
initial investment of $5 million. Investment A then generates $2.00
million per year in perpetuity, while investment B pays $1.50
million in the first year, with cash flows increasing by 3% per
year after that. At what cost of capital would an investor regard
both opportunities as being equivalent?
A.13%
B.3%
C.12%
D.6%

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 6 minutes ago

asked 10 minutes ago

asked 14 minutes ago

asked 32 minutes ago

asked 37 minutes ago

asked 46 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago