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[Mutual exclusivity] Any final choice you make will be at the expense of the profits/benefits that could have been generated by the excluded project

[Mutual exclusivity] Any final choice you make will be at the expense of the profits/benefits that could have been generated by the excluded project [Mutual exclusivity] Any final choice you make will be at the expense of the profits/benefits that could have been generated by the excluded project
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Mutual exclusivity is a statistical term describing at least two events that can not take place simultaneously.

It is used to describe a situation where the occurrence of one event is not influenced or caused by another. For example, the same person who owns a sum of money cannot simultaneously invest it in an investment fund and buy company shares. Another example:  the results of tossing coin run may result in "heads" or "tails", but not both. These results are collectively exhaustive, that is to say that one of the two must necessarily occur in order to eliminate the remaining possibility. However, any mutually exclusive event is not exhaustive because, in the case where one draws a six-sided dice, two opposing sides are mutually exclusive, but other results are possible on the four other faces.

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In the corporate world, the concept of mutual exclusivity is applied in capital budgeting. Firms often have to choose between a number of different projects in order to add value to the business. Some of these projects are mutually exclusive, like the sides of a coin, while others, like the faces of the dice, are independent. Here is a scenario:

A company has a budget of 50,000 euros to invest in new projects. Projects A and B cost 40,000 euros each and project C only costs 10,000: the company can combine A and C or B and C, but not A and B; A and B are mutually exclusive while C and A and C and B are independent.

Thus, faced with two mutually exclusive options, the company must consider the opportunity cost related to each of these projects because the final choice will be at the expense of the profits that could have generated the excluded project.

By ImTheoriqBeatme | 14/08/2020

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