Question

If two projects (investments) A and B are said to be mutually exclusive then we know that the firm ______________. can choose to invest in both A and B together, but then cannot invest in any other projects. must choose to invest in either A or B, but not both. can choose to invest in both A and B together but only if the most risky project is done first. can choose to invest in both A and B together.

Answer 1

must choose to invest in either A or B, but not both.

Step-by-step explanation:

The whole concept of being mutually exclusive is that you must choose only one alternative investment. You can either choose to invest in A or B, but you cannot invest in both A and B, or first invest in A (or B) and then in the other one.

Generally investment projects are mutually exclusive due to budgetary constraints, i.e. you do not have enough money to invest in all of them, so you must choose the most profitable one considering the associated risks and capital costs.