Independent Projects
Short definition
Independent projects are jobs where accepting one does not materially change the other’s cash or resource use. Each passes its own NPV/IRR screen; without a ceiling, all can be done.
Detailed explanation
Technical independence means cash flows add. A shared plant, shared cash or shared collateral breaks independence and the incremental files merge.
With no ceiling, the rule is accept if NPV > 0 (or IRR > hurdle). With a ceiling, technical independence still meets economic rationing. Complements (B’s cash falls if A is off) are valued as a package, not independently.
Why it matters for the CFO
If the committee treats every file as independent, shared megawatts or a shared warehouse are double-counted.
How to read it
Correlation is statistical dependence; decision independence is about overlapping cash and resources. Portfolio risk is a separate question from the accept rule.
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Definitions are educational. They are not investment, credit or tax advice.