Mutually
Exclusive Divisible projects Example
Mr. A has $ 500 fund and
want to invest those fund in some project. He has the following divisible projects.
Project B & D are mutually exclusive
|
Project
|
Funds Requirement
|
NPV
|
|
A
|
210
|
35
|
|
B
|
250
|
45
|
|
C
|
230
|
40
|
|
D
|
300
|
60
|
Help Mr. A for right
selection of projects
Solution
1. Calculate profitability Index
|
Project
|
Funds Requirement
|
NPV
|
P. Index
|
|
A
|
200
|
35
|
=35/210
=.166
|
|
B
|
250
|
45
|
=45/250
=.18
|
|
C
|
230
|
40
|
=40/230
= .175
|
|
D
|
300
|
60
|
=60/300
=.2
|
2. Rank the project (according to
Profitability Index)
|
Profitability
Index
|
Ranking
|
|
.2
|
D
|
|
.18
|
B
|
|
.175
|
C
|
|
.166
|
A
|
3. Combination of projects D & B
Combination will be decided on the bases of profitability
index
|
Combination B
|
Combination D
|
|
B,C,A
|
D,C
|
|
|
D,A
|
|
|
|
|
|
|
|
|
|
4. B, C, A Combination
|
|
P.I
|
Fund requirement
|
Balance
|
NPV
|
|
B
|
.18
|
250
|
250
|
45
|
|
C
|
.175
|
230
|
20
|
40
|
|
A
|
.166
|
20
|
0
|
3.5
(10% of 35)
|
|
Total
|
|
|
|
88.5
|
5. D, C
|
|
P.A
|
Fund requirement
|
Balance
|
NPV
|
|
D
|
.200
|
300
|
200
|
60
|
|
C
|
.175
|
200
(87%)
|
0
|
35 (87%
of 40)
|
|
A
|
.166
|
|
0
|
95
|
Combination of D,C will be
selected because it will provide higher NPV
