Net present value and profitability index use dis- counted cash flows to measure the expected returns on potential capital projects. Net present value (NPV) is the present value of cash inflows minus the present value of cash out- flows. To be acceptable, a project must generate an NPV of $0 or more. Profitability index (PI) is the present value of cash inflows divided by the present value of cash out- flows. To be acceptable, a project must generate a PI of at least 1.

 LO.1