1. Explain the difference between independent, mutually exclusive, and contingen
ID: 2793223 • Letter: 1
Question
1. Explain the difference between independent, mutually exclusive, and contingent investment projects. Imagine that you work for Ford, the car manufacturer. Give examples of each type of project that they might be considering. [Note: you don't have to do any research about Ford to answer this question. Just think of potential projects that a company like Ford might consider which would fit in each category, to show me that you understand the difference between the three types.]- 2. Depreciation is a noncash expense. Explain why it is necessary to consider depreciation when estimating a project's net cash flows?. 3. Blyft, an app that arranges for people to pick you up on their bicycles, has developed the following schedule of potential investment projects that may be undertaken over the next year Cost (millions) S3- S2- Expected Return 20% 22%- 790 10%- 12%- 8%. 25%. Project Bo Co S7- S5- $2. S1° Fo G- Draw a graph plotting the firm's investment opportunity curve (IOC) and its marginal cost of capital curve (MCC). Be sure to label your graph clearly. Assume that the firm's marginal cost of capital is 8% for the first $10 million of total investments, 9% for the next $10 million, and 10% for any investments in excess of $20 million. Which projects should be adopted?Explanation / Answer
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A mutually-exclusive investment project is one where acceptance of such a project will have an effect on the acceptance of another project. In mutually exclusive projects, the cash flows of one project can have an impact on the cash flows of another. For example if ford want to buy machines for making car mat, there are various options available in the market they have to choose one of the option.
An Independent project is that project which is not the mutually-exclusive project decision of investing in one project is independent to another one like ford planning to produce car mat and seat cover
Contingent investments are dependent projects; the choice of one investment necessitates undertaking one or more other investment. For example, if a Ford decides to build a factory in a remote, backward area, it may have to invest in houses, roads, hospitals, etc
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