Types Of Proposal Or Capital Project

Capital project can be classified as following:

1. Mutually Exclusive Project

The project, under which the selection of any project eliminates the possibility of selecting another project, is called mutually exclusive project. For example, if project X, Y and Z are mutually exclusive and suppose a firm selects project Y. The selection project Y means that projects X and Z are automatically rejected. All replacement projects(replacement of existing project by purchasing new project) are mutually exclusive.

2. Mutually Related Projects

The project under which the selection of any project does not affect the possibility of selecting another project is called mutually related or independent projects. Independent projects are evaluated on the basis of cost and benefit of the related project rather than comparing with other projects.

3. New Project

The investment in a new alternative is called new project. The establishment of a new sugar factory is an example of new project.

4. Replacement Projects

The projects in which the existing assets are replaced by new assets are known as replacement projects. Generally, manual based and outdated projects are replaced by new and automatic assets. Such projects help to increase the efficiency and reduction cost. The replacement of manual machine by automatic machine is an example of replacement project.

5. Expansion Projects

When the capacity of existing project is expanded for the purpose of increasing the revenue generating capacity, such project is called expansion project. In other words, it refers to increasing the present capacity of a project according to the demand of the product.

6. Diversification Projects

Diversification projects are those projects where investment is made in such alternative which is not identical with existing project. Investment in pharmaceutical sector by computer manufacturer is an example of diversification project. The purpose of such project is to minimize the risk.