A project is acceptable under the profitability index technique if its:

Question

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The profitability index (PI) is calculated by dividing the present value of future cash flows by the initial investment. A PI greater than one indicates that the project's present value of cash inflows is greater than the initial investment, making it acceptable. A PI less than one means the opposite, that the project's present value of cash inflows is less than the initial investment, making it unacceptable. A PI greater than zero is a prerequisite for any viable investment project, but it does not necessarily make the project acceptable. A PI greater than the initial outlay is not a meaningful criterion, as it is always true for any project with positive cash flows.

A Project Is Acceptable Under the Profitability Index Technique If