## The profitability index pi approach ____

The profitability index (PI) is one of the methods used in capital budgeting for project valuation. In itself it is a modification of the net present value (NPV) method. The difference between them is that the NPV is an absolute measure, and the PI is a relative measure of a project. Profitability index ( PI ), also known as profit investment ratio ( PIR) and value investment ratio ( VIR ), is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment. The profitability index is known as benefit cost ratio. PI is similar to the NPV approach. The profitability index approach measures the present value of return per dollar invested, while the NPV is based on the difference between the present value of the future cash inflow and present value of cash outlay. PI is calculated by dividing the present value of future cash inflow by present value of cash outlay. The Profitability Index (PI) or profit investment ratio (PIR) is a widely used measure for evaluating viability and profitability of an investment project. It is calculated by dividing the present value of future cash flows by the initial amount invested. Advantages Of Profitability Index (PI) 1. PI considers the time value of money. 2. PI considers analysis all cash flows of entire life. 3. PI makes the right in the case of different amount of cash outlay of different project. 4. PI ascertains the exact rate of return of the project. Disadvantages Of Profitability Index(PI) 1. The profitability index (PI) shows the present value of cash inflow generated by each dollar invested in a project. It assumes that the funds released from a project are reinvested in another project with a return equal to the discount rate. In our problem, the discount rate is only 10%. C. Profitability index (PI) A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the financial consequences of possible prediction errors is:

## Profitability Index (PI) or Benefit-Cost Ratio Profitability Index (PI) is a capital budgeting technique to evaluate the investment projects for their viability or profitability. Discounted cash flow technique is used in arriving at the profitability index.

The profitability index (PI) is one of the methods used in capital budgeting for project valuation. In itself it is a modification of the net present value (NPV) method. The difference between them is that the NPV is an absolute measure, and the PI is a relative measure of a project. Profitability Index (PI) or Benefit-Cost Ratio Profitability Index (PI) is a capital budgeting technique to evaluate the investment projects for their viability or profitability. Discounted cash flow technique is used in arriving at the profitability index. The profitability index (PI) or PI index is a measure that is used in finance to assess whether a company should pursue a project or not. The profitability index is strongly related to the Net Present Value (NPV), which we discuss on the page on NPV (insert link). Profitability Index = 1 + (Net Present Value / Initial Investment Required) If we compare both of these profitability index formulas, they both will give the same result. But they are just different ways to look at the PI. Components. Here you need to pay heed to a few components which you need to use while you calculate profitability index (PI).

### Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project.

The Profitability Index (PI) or profit investment ratio (PIR) is a widely used measure for evaluating viability and profitability of an investment project. It is calculated by dividing the present value of future cash flows by the initial amount invested. Advantages Of Profitability Index (PI) 1. PI considers the time value of money. 2. PI considers analysis all cash flows of entire life. 3. PI makes the right in the case of different amount of cash outlay of different project. 4. PI ascertains the exact rate of return of the project. Disadvantages Of Profitability Index(PI) 1. The profitability index (PI) shows the present value of cash inflow generated by each dollar invested in a project. It assumes that the funds released from a project are reinvested in another project with a return equal to the discount rate. In our problem, the discount rate is only 10%. C. Profitability index (PI) A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the financial consequences of possible prediction errors is: THE USE OF PROFITABILITY INDEX IN ECONOMIC EVALUATION OF INDUSTRIAL INVESTMENT PROJECTS Marian Andrei GURAU1,* 1) PhD student, Faculty of Engineering and Technological Systems Management, University “Politehnica” of Bucharest, Romania The profitability index (PI) refers to the ratio of dis- A capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return, IRR, decision rule. Net Present Value. A graph of a project's ______ is a function of cost of capital.

### What is the Profitability Index? The Profitability Index (PI) measures the ratio between the present value of future cash flows and the initial investment. The index is a useful tool for ranking investment projects and showing the value Value Added Value Added is the extra value created over and above the original value of something. It can apply to products, services, companies, management, and other areas of business.

12 Dec 2019 The profitability index (PI) rule is a calculation of a venture's profit potential, used to decide whether or not to proceed. 27 Jan 2020 The profitability index (PI), alternatively referred to as value investment ratio (VIR) , or profit investment ratio (PIR), describes an index that A profitability index of .85 for a project means that: the present Ranking these projects on the basis of IRR, NPV, and PI methods give contradictory results. In the discounting approach, all the negative cash flows are discounted back to Profitability index (PI) is present value of cash inflows divided by the present

## Profitability Index = NPV / Investment So we are simply looking at the NPV amount per dollar of investment. Projects with highest NPV per dollar of investment are considered more attractive and the investment dollars are first allocated to them so that the returns of the firm are maximized.

Advantages Of Profitability Index (PI) 1. PI considers the time value of money. 2. PI considers analysis all cash flows of entire life. 3. PI makes the right in the case of different amount of cash outlay of different project. 4. PI ascertains the exact rate of return of the project. Disadvantages Of Profitability Index(PI) 1. The profitability index (PI) shows the present value of cash inflow generated by each dollar invested in a project. It assumes that the funds released from a project are reinvested in another project with a return equal to the discount rate. In our problem, the discount rate is only 10%. C. Profitability index (PI) A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the financial consequences of possible prediction errors is: THE USE OF PROFITABILITY INDEX IN ECONOMIC EVALUATION OF INDUSTRIAL INVESTMENT PROJECTS Marian Andrei GURAU1,* 1) PhD student, Faculty of Engineering and Technological Systems Management, University “Politehnica” of Bucharest, Romania The profitability index (PI) refers to the ratio of dis- A capital budgeting technique that converts a project's cash flows using a more consistent reinvestment rate prior to applying the Internal Rate of Return, IRR, decision rule. Net Present Value. A graph of a project's ______ is a function of cost of capital.

A project's ____ is the sum of the present values of all cash inflows and outflows discounted at the cost of capital. NPV. The profitability index is a variation of the ____ method. NPV A project is acceptable under the profitability index technique if its. PI > 1 replacement chain method; equivalent annual annuity approach.