You are opening up a brand new retail strip mall. You presently have more potential retail outlets wanting to locate in your mall than you have space available. What is the most appropriate tool to use if you are trying to determine the optimal allocation of your retail space?

Question

Quizplus · Accepted Answer

The profitability index (PI) is the ratio of the present value of future cash flows to the initial investment. By calculating the PI for each potential retail outlet, you can determine which ones are expected to generate the highest return per dollar invested in them. This allows you to allocate your retail space in the most efficient way possible. IRR, payback period, and NPV are all useful financial metrics, but they do not provide the same level of insight into the specific allocation of retail space as the PI.

You Are Opening Up a Brand New Retail Strip Mall