when faced with a choice between mutually exclusive options a company must consider the opportunity cost which is what the company would be giving up to pursue each option the concepts of opportunity cost and mutual exclusivity are inherently linked because each mutually exclusive option requires the sacrifice of whatever profits could have been generated by choosing the alternate option 
the time value of money tvm and other factors make mutually exclusive analysis a bit more complicated for a more comprehensive comparison companies use the net present value npv and internal rate of return irr formulas to mathematically determine which project is most beneficial when choosing between two or more mutually exclusive options example of mutually exclusivethe concept of mutual exclusivity is often applied in capital budgeting companies may have to choose between multiple projects that will add value to the company upon completion some of these projects are mutually exclusive for example assume a company has a budget of 50 000 for expansion projects if available projects a and b each cost 40 000 and project c costs only 10 000 then projects a and b are mutually exclusive if the company pursues a it cannot also afford to pursue b and vice versa project c may be considered independent regardless of which other project is pursued the company can still afford to pursue c as well the acceptance of either a or b does not impact the viability of c and the acceptance of c does not impact the viability of either of the other projects moreover when looking at opportunity costs consider the analysis of projects a and b assume that project a has a potential return of 100 000 while project b will only return 80 000 since a and b are mutually exclusive the opportunity cost of choosing b is equal to the profit of the most lucrative option in this case a minus the profits generated by the selected option b that is 100 000 80 000 20 000 because option a is the most lucrative option the opportunity cost of going for option a is 0 