The profitability index (PI) is the ratio of the preset value of expected net cash flows over
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The profitability index (PI) is the ratio of the preset value of expected net cash flows over the life of the project to the net investment.
a. If the project has a PI equal to or greater than 1.0, it is acceptable.
b. The PI can be used as a guide to resource allocation in a situation of capital rationing. GT=75
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