Page 16 - FINAL CFA SLIDES DECEMBER 2018 DAY 11
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Session Unit 10:
35. Capital Budgeting
LOS 35.c: Explain how the evaluation and selection of capital projects is affected by mutually exclusive projects,
project sequencing, and capital rationing., p.21
Independent vs. Mutually Exclusive Projects
• Independent projects are unrelated to each other -and hence, BOTH could be accepted;
• Mutually exclusive –ONLY ONE project can be accepted –they compete with each other!
Project Sequencing
Investing in a project today creates the opportunity to invest in other projects in the future.
Unlimited Funds vs. Capital Rationing tanties
• Unlimited access to capital means firm can undertake ALL viable projects!
• Capital rationing -if a firm’s profitable project opportunities exceed the amount of funds available, the
firm must ration, or prioritize, to achieve maximum PV per unit of scare capital!
LOS 35.d: Calculate and interpret net present value (NPV), internal rate of return (IRR), payback period,
discounted payback period, and profitability index (PI) of a single capital project., p.21
