Mutually exclusive projects
Mutual exclusivity can arise when different machines serve the same requirement or alternative developments use the same site. Compare value on a consistent basis and choose the best feasible alternative, normally using NPV when appropriate. Different project lives may require careful treatment if service must continue. A general shortage of funds is capital rationing rather than necessarily inherent mutual exclusivity: relaxing the budget could allow both independent projects. Distinguish exclusivity, dependency and resource constraints because they require different investment-selection logic.
Worked example
A business can install either machine A or machine B in a single production space to perform the same task. It cannot operate both there, so they are mutually exclusive. Two unrelated positive-NPV projects may instead be independent but constrained by a limited budget.
Common mistake
Describing every pair of unaffordable independent projects as inherently mutually exclusive, or ranking alternatives by IRR alone.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |