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Mutually exclusive investments

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Why does capital budgeting rely on analysis of cash flows rather than on net income?

What does the term mutually exclusive investments mean?

If corporate managers are risk-averse, does this mean they will not take risks? Explain.

Explain how the concept of risk can be incorporated into the capital budgeting process.

If risk is to be analyzed in a qualitative way, place the following investment decisions in order from the lowest risk to the highest risk:
a. New equipment.
b. New market.
c. Repair of old machinery.
d. New product in a foreign market.
e. New product in a related market.
f. Addition to a new product line.

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Solution Preview

Why does capital budgeting rely on analysis of cash flows rather than on net income?

What does the term mutually exclusive investments mean?

If corporate managers ...

Solution Summary

This explaisn the concept of mutually exclusive investments

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