The profitability index provides the same decision result as the net present value (NPV)method.

Question

Quizplus · Accepted Answer

The profitability index (PI) method is a variation of the net present value (NPV) method, which measures the present value of future cash flows scaled by the initial investment. Both methods provide the same decision rule in that an investment should be accepted if the present value of future cash flows exceeds the initial investment or rejected otherwise. Therefore, the profitability index provides the same decision result as the NPV method.

The Profitability Index Provides the Same Decision Result as the Net