Profitability Index (PI) or Benefit-Cost Ratio
Profitability Index (PI) is a capital budgeting technique to evaluate the investment projects for their viability or profitability. Discounted cash flow technique is used in arriving at the profitability index. It is also known as benefit-cost ratio. Calculation of profitability index is possible with a simple formula with inputs as – discount rate, cash inflows and outflows. PI greater than or equal to 1 is interpreted as good and acceptable criterion.
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