All proposals which yield a rate of return greater than a certain (pre-established/required) rate of return, or cost of capital, are acceptable and the rest are rejected. [Note that : "acceptable" is used and not L'accepted' - this is because "acceptance" in the "final sense" may depend on several other considerations following "acceptability". Such considerations include : The line of business thereof being desirable; funds for investment being available; socio-political influences and mileages that can be acquired thereby; etc.] One important aspect is that, for acceptance, the project should be independent - i.e, it should not be competing with any other project in such a way that the acceptance of one forecloses (or precludes) the possibility of acceptance of another. If accepted, in view of )her considerations also, all so accepted independent projects should be implemented.
Even though f?w proposals in a firm are truly independent, yet, for practical purposes, it is quite reasonable to attribute "independence" in several cases. If a new machine is to be added to improve total production, advertising activity may include information on the prospects of increased production. Yet, the two can be considered as independent proposals - since the proposals are functionally different and there is no obvious inviolable dependency between these two proposals. Installing air-conditioning and purchase of fork-lift trucks can be truly independent investment proposals in this manner.
A group of investment proposals may be related to one another in such a way that acceptance of one influences the acceptance of others; like : installing a computer system and purchasing UPS therefor. These are called "dependent" proposals. For purposes of "independence" of projects, such dependent proposals are to be taken together as one independent proposal.
Another type of relationship between proposals is based on Contingency, i.e. once some initial project is undertaken, other auxiliary investments become feasible; note that the "dependency" is "one-way ", such auxiliary proposals are called "contingent" proposals since their acceptance is conditional to the acceptance of another proposal. For example, construction of a second floor of a building is contingent on the construction of all lower floors. The pre-requisite proposal is an independent project in such cases.
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