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## Profitability Index (PI) or Benefit-Cost Ratio (BIC Ratio)

Profitability Index (PI) or Benefit-Cost Ratio (BIC Ratio)  Yet another time-adjusted capital budgeting technique is profitability index PI or benefit-cost ratio (B/c). It is similar to the NPY approach. The profitability index approach measures the present value of...

## Accept-reject Rule

Accept-reject Rule  The decision rule is that if the present value of the sum total of the compounded reinvested cash inflows (pvrs) is greater than the present value of the outflows (PVO) the proposed project is accepted otherwise not. Symbolically                  ...

## solutions

solutions We would reinvest Rs 4,000 received at the end of the year I for 4 ye:vs at the rate of 6 per cent. Tile cash inflows in year 2 will be re-invested ‘for 3 years at 6 per cent, the cash inflows of year 3 for 2 years and so on. There win-be no...

## Terminal Value Method

The terminal value approach ( T v ) even more distinctly separates the timing of the cash inflows and outflows. The assumption behind the I V approach is that each ,cash inflow is reinvested in another asset at a sertain rate of return from the moment it is received...

## Evolution of IRR

Evolution of IRR The IRR method is a theoretically correct technique to evaluate capital expenditure decisions. II has the advantages which are offered by the NPV criterion such as:.(j) it considers the time value of money. and (ii) it takes into ‘account the...

## Solutions

Solution 1. The sum of cash-inflows of l Hitherto machines is Rs 93,000 which when divided by the economic life of the machine (5 rears). results in a ‘fake annuity’ of Rs 18.600. 2. Dividing the blini outlay of Rs by R, 18.600, we have ‘fake average...