The calculation of the profitability index (PI)is most helpful for which type of decisions?

Question

Quizplus · Accepted Answer

The profitability index (PI) is most helpful for preference decisions, which involve choosing between multiple investment projects. The PI is calculated as the present value of the future cash flows divided by the initial investment cost. A PI greater than 1.0 indicates that the project is expected to generate a positive return, and a higher PI indicates a greater expected return. Therefore, the PI is useful for evaluating which project will generate the highest return on investment and making decisions based on that information.

The Calculation of the Profitability Index (PI)is Most Helpful for Which