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Mutually Exclusive Projects. Mutually exclusive projects are projects in which acceptance of one project excludes the others from consideration. In such a scenario the best project is accepted. NPV and IRR conflict, which can sometimes arise in case of mutually exclusive projects, becomes critical. The conflict either arises due to the relative size of the project or due to the different cash flow distribution of the projects. Since NPV is an absolute measure, it will rank a project adding more dollar value higher regardless of the original investment required. IRR is a relative measure, and it will rank projects offering best investment return higher regardless of the total value added.
2. McCarver Inc. is considering the following mutually exclusive projectsâ Project A Project B Year Cash Flow Cash Flow 0 -$5,000 -$5,000 1 200 3,000 2 800 3,000 3 3,000 800 4 5,000 200 At what cost of capital will the net present value of the two projects be the same? (That is, what is the âcrossoverâ rate?) 3.he director of capital budgeting for Giant Inc. has identified two mutually exclusive projects, L and S, with the following expected net cash flows: Expected Net Cash Flows Year Project L Project S 0 1 2 3 -$100 10 60 80 -$100 70 50 20 The companyâs cost of capital is 10%. Which should be chosen? 26.