Chapter 12, Problem 1DQ

To determine

Differentiate between independent projects and mutually exclusive projects.

Explanation of Solution

Independent Projects and Mutually Exclusive Projects:

When acceptance or rejection of a project does not affect the cash flows of other projects, it is known as an independent project whereas when acceptance of a project disqualifies all other contesting projects, it is known as a mutually exclusive project.

Basis	Independent Projects	Mutually Exclusive Projects
Effect on other projects	The acceptance or rejection of independent projects does not affect the acceptance of rejection of other projects.	The acceptance of a mutually exclusive project disqualifies all the other competing projects.
Number of projects	More than one independent project may be accepted at a given time.	Only one mutually exclusive project can be accepted at a particular time.
Cash flow	The acceptance of an independent project does not affect the cash flows of the other independent projects.	The acceptance of a mutually exclusive project affects the cash flows of other projects.

Table (1)