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Asset investment decisions and capital rationing
3.4 Indivisible projects – trial and error
If a project is indivisible then it must be done in its entirety or not at all
(e.g. invest in a production line for a new product or do not invest. Part
of a production line is of no use)
When projects are indivisible the optimal combination of projects to
undertake with the capital available can only be found by trial and error.
3.5 Mutually exclusive projects
When certain projects cannot be done together, perhaps because they are different
uses of the same asset, each combination of investments should be tried to
determine which gives the highest overall NPV.
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