Choose between mutually exclusive projects
Make a supported recommendation when the business can select only one project.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. This topic covers future net cash flows, payback, ARR, NPV, IRR and supported investment decisions. Discounted payback and questions involving a residual value at the end of a project are excluded by Cambridge. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use AS Topics 1.5–1.6 for profit, depreciation and financial analysis, and Topic 2.1 for contribution. Keep accounting profit, project cash flow and the time value of money distinct.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Two proposals need the only available production site. What type of choice is this?
What you will learn
- Recognise a mutually exclusive choice
- Use consistent appraisal results
- Explain ranking conflict and feasibility
A choice has one available slot
Projects are mutually exclusive when accepting one prevents accepting another, for example because both need one site or one budget allocation. The choice is not simply whether each passes a separate threshold.
Compare investment, lifespan, cash flows and operating constraints on a consistent basis. Follow the organisation's stated objective and rules.
Explain the conflict, then recommend
NPV at a common required rate can show value contribution. IRR and ARR are percentages and may rank projects differently; payback focuses on recovery speed.
State the preferred option, quantify the difference, explain assumptions and name a risk or condition that could change the decision.
Pause and explain
Both projects pass IRR, but B has higher NPV at the same rate. What next?
Worked example
A can fund only one project. A NPV is $24,000 and IRR 18%; B NPV is $31,000 and IRR 15%. Required return is 12%. What does this suggest?
Show the worked solution
- Both IRRs exceed the requirement.
- B NPV is higher by $7,000.
- If value creation is the objective and conditions are comparable, NPV supports B.
Answer B is provisionally preferred for its $7,000 higher NPV; verify lives, risk, cash and capacity.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A and B cannot both proceed. NPVs are $9,000 and $13,000 at the same rate. Give a provisional choice and condition.
Give me a hint
Compare value, then a practical constraint.
Compare my reasoning
- B leads by $4,000 NPV.
- Choose B provisionally on the same basis.
- Check funding and operating capacity.
B is provisionally preferred by $4,000 NPV, subject to funding and operational feasibility.
Look for these in your work
- Difference correct
- Choice stated
- Condition included
X has NPV $18,000 and payback 4 years; Y NPV $15,000 and payback 2 years. The strict recovery limit is 3 years. Which can proceed under the rule?
Give me a hint
Apply the firm constraint before ranking value.
Compare my reasoning
- X has higher NPV but fails the 3-year limit.
- Y meets the limit.
- If the rule is firm, Y is feasible; state its $3,000 lower NPV.
Y meets the constraint and has $3,000 lower NPV, which is the trade-off.
Look for these in your work
- Constraint applied
- Feasible option identified
- Trade-off explained
A school has one lab. Two projects have similar NPVs, but one needs specialist staff unavailable this year. How should the recommendation handle that?
Give me a hint
A strong appraisal does not make an infeasible project deliverable.
Compare my reasoning
- Identify the staffing constraint and period.
- Check if training or timing could resolve it.
- Recommend a feasible option or make the preferred choice conditional on staffing.
Select a feasible project this year or condition the preferred project on a credible staffing plan.
Look for these in your work
- Constraint explicit
- Resolution tested
- Conditional choice justified
Common mistakes
- Approving both when they cannot coexist
- Comparing NPV at different rates
- Selecting a percentage without checking scale
What can you explain now?
Mutually exclusive means…
Compare with the explanation
Selecting one prevents selecting the other
The choice is a trade-off because only one project can proceed.
After trying it yourself, choose your next review. This is your self-assessment.
Your review choice appears on Today. Sign in to sync it across devices.
Make it stick
How do you handle projects that cannot both be accepted?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.