[Anonymous]

Mercken Industries is contemplating four mutually exclusive projects; the capital costs and estimated after-tax net cash flows (CF) of each are listed. Mercken’s desired after-tax opportunity cost is 12%, and its capital budget for the year is $450,000. Idle funds cannot be reinvested at greater than 12%.

Project P Project Q Project R Project S

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---

---

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Initial cost $200,000 $235,000 $190,000 $210,000

Net CF: Year 1 $ 93,000 $ 90,000 $ 45,000 $ 40,000

Year 2 93,000 85,000 55,000 50,000

Year 3 93,000 75,000 65,000 60,000

Year 4 0 55,000 70,000 65,000

Year 5 0 50,000 75,000 75,000

NPV $ 23,370 $ 29,827 $ 27,333 $ (7,854)

IRR 18.7% 17.6% 17.2% 10.6%

Index 1.12 1.13 1.14 0.96

During this year Mercken will choose:

A.

projects P, Q, and R.

B.

projects Q and R.

C.

projects P and R.

D.

projects P and Q.

Since the projects are mutually exclusive, how can they choose more than one???

[mla1169]

Mutually excluding means that one project doesn't depend on the results of another. I may choose to eat a peanut butter and jelly sandwich AND walk my dog. They are mutually exclusive as I can walk the dog without the sandwich or vice versa, but I can do both if I choose.

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[Anonymous]

so what is the terminology for when you can only chose one???

[Anonymous]

Definition of ‘Mutually Exclusive' A statistical term used to describe a situation where the occurrence of one event is not influenced or caused by another event. In addition, it is impossible for mutually exclusive events to occur at the same time.

i was under the impression that mutually exclusive meant that only one could be chosen….

[thechapman]

Honestly when I hear mutually exclusive I think only one of the two things can happen. If they are getting into how well people can navigate semantics…..(it wouldn't be a new occurrence)

Passed - 2014

[mla1169]

When you can choose only one the question will be that straightforward “company can choose only one”.

Mutually exclusive doesn't limit your choices, if anything it allows for more options since project P doesn't depend on the successful completion of project Q.

Heres an example of two projects that are NOT mutually exclusive. I am going to make my own butter as project A. I am going to use that butter to bake cookies as project B. Well if project A fails, project B is no longer a possibility so these projects are NOT mutually exclusive.

I think you're giving your own implied definition to the phrase mutually exclusive. Its really not semantics, its a simple definition.

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[y_u_no_pass]

It says they have a budget of $450,000 so they are exclusive to that amount. It is impossible to do all of them. I agree it is poorly worded, but I'm sure you still get the point.

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[y_u_no_pass]

It says they have a budget of $450,000 so they are exclusive to that amount. It is impossible to do all of them. I agree it is poorly worded, but I'm sure you still get the point.

Florida CPA!
Took final exam 2/25/15.
Sent in Application 3/12/15.
Issued License 3/20/15.
Used CPA Excel solely for all exams.

[Anonymous]

mla, the definition of mutually exclusive is that mutually exclusive events can not occur at the same time, that's not my own definition, that is from google….

[Kimboroni]

I think they're only using this part of the definition: “where the occurrence of one event is not influenced or caused by another event.” So it's a bit poorly worded, but they just mean that the results of each project should be calculated independently and then analyzed together within the overall budget.

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[Author]

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