What are Mutually Exclusive Investments?

Mutually exclusive investments are a set of prospective capital investments, where the selection of one investment automatically excludes the other projects from being funded. The concept of mutually exclusive investments can also be driven by strategic considerations, where funds are directed toward those projects that will allow an organization to most effectively pursue a specific strategic direction.

Example of a Mutually Exclusive Investment

Here are several examples of mutually exclusive investments:

Limited funding available. A company has $1,000,000 to invest, so the selection of Project A (which requires an investment of this amount) eliminates the possibility of making any other investments. Conversely, if the company could invest these funds in a set of projects, none of which required more than a $200,000 investment, then none of them would be considered a mutually exclusive investment.
Single outcome needed. A manufacturing company is considering two different locations to build a new factory: Location A and Location B. Both locations have unique advantages, but the company has the budget to invest in only one. The company cannot invest in both locations due to capital constraints or strategic focus. Choosing Location A means Location B is no longer an option, and vice versa.