Net Present Value Vs. Profitability Index

In most situations, the NPV and PI, as investment criteria, provide the same accept and reject decision, because both the methods ate closely related to each other. Under the PI method, the investment proposal will be acceptable if the PI is greater than one it will be greater than one only when the proposal has a positive net present value. Likewise, PI will be less than one when the investment proposal has negative net present value under the NPV method. However, while evaluating mutually exclusive investment proposals, these methods may give different rankings.

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