The present value of the benefits and costs needed to calculate Profitability Index (PI)is the same information one finds when computing the NPV.

Question

Quizplus · Accepted Answer

Profitability Index (PI) is calculated by dividing the present value of the benefits (cash inflows) by the present value of the costs (cash outflows). This means that both present values are needed to calculate PI, which is also the case for the calculation of Net Present Value (NPV). Therefore, the present value of the benefits and costs needed to calculate PI is the same information one finds when computing NPV.

The Present Value of the Benefits and Costs Needed to Calculate