Certified Financial Management Specialist Practice Exam

Mutually exclusive projects refer to projects that?

1. Allow multiple selections simultaneously

2. Require only one to be selected

3. Share similar goals and outcomes

4. Occupy the same market position

The correct answer is: Require only one to be selected

Mutually exclusive projects refer to scenarios where the selection of one project inherently precludes the selection of another. This means that only one project can be pursued from the available options, as the selection of one project will eliminate the possibility of choosing others in that particular set. In contexts such as capital budgeting, this concept is crucial because it influences decision-making when organizations must allocate limited resources. For instance, if a company is considering several investment opportunities for new product development, choosing one project means that the resources, such as budget and talent, cannot simultaneously be devoted to another project in the same category. The other options refer to differing scenarios: allowing multiple selections, sharing similar goals, or occupying the same market position do not capture the essence of mutual exclusivity, which is fundamentally about the limitation of choices in a decision-making process where only one option is viable at a time.