Mutually Exclusive Projects
Short definition
Mutually exclusive projects compete for the same scarce resource or the same job, so accepting one rules out the other. The ranking rule is NPV (EAA if lives differ); IRR is not enough.
Detailed explanation
Two bids on the same land, line, licence or team cannot use an independent accept/reject screen. When scale and life differ, IRR favours the small fast job; NPV (or EAA) picks the one that creates more value.
Capital rationing is a separate constraint: exclusion can also come from a budget ceiling. Then PI and packaging enter.
Why it matters for the CFO
If the committee passes every file on “IRR > WACC”, it either approves two exclusive jobs or picks the wrong one.
How to read it
A crossover of NPV profiles means ranking flips with r. If the hurdle is uncertain, check that the winner is stable across the relevant r band.
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Definitions are educational. They are not investment, credit or tax advice.