1. What does mutually exclusive mean?
Independent projects are also mutually exclusive.
We must choose all the high NPV projects that are exclusive for our company.
Each project must be mutually beneficial for other projects in the company.
The highest IRR is always the best option, which is mutually exclusive.
Taking one project means that we cannot take the other.
2. Calculate the after-tax return on the following securities for a company that is in the 30% federal tax bracket. Assume the tax rate on dividends is 15%.
A. Treasury bonds at 5%
B. Corporate bonds at 8.25%
C. Municipal bonds at 7%
D. Preferred stock at 6.5%