Distinguish between NPV and PI. Which of these is considered better?

Net Present Value (NPV) and Profitability Index (PI) are both financial metrics used in capital budgeting to evaluate investment projects, but they differ in their approach and interpretation.

Net Present Value (NPV):
NPV is the sum of the present values of all cash inflows and outflows associated with a project over its lifetime. It represents the absolute value that an investment is expected to add or subtract from a company’s wealth. The NPV formula is given by:

\[
NPV = \sum \frac{C_t}{(1 + r)^t}
\]

where \(C_t\) is the cash flow in time period \(t\), and \(r\) is the discount rate (cost of capital).

A positive NPV indicates that the project is expected to add value to the company and should be accepted, while a negative NPV suggests that the project will destroy value and should be rejected. The decision rule for NPV is straightforward: accept projects with a positive NPV and reject those with a negative NPV.

Profitability Index (PI):
The Profitability Index is a ____ ___ __________ _____ ______ ____ ____ _______.
________ ______ ___ __________ _________.
__________ ______ __________ ___ _____ _______ _____ __________ ______ ______ _______.
__________ _______ ________ __________ _____ ________ ____ ________ ____ ________.
_____ ______ ________ _____ __________ ________ __________ __________.
____ ___ ___ _______ __________ __________ ________ ______ ____.
________ _____ ___ ___ ________ _______ ____ _______ ________ ____ _____ ________.
______ ___ ________ ________ ________ _______ _________ __________ ____.
_____ _______ _____ _______ __________ __________ ____ _________ _____ ___.
____ ____ ______ ________ ____ __________ _______ ______.
_________ _____ ______ ___ ______ ______.
________ _______ __________ ____ ________ _________ ____ __________ ________ ____.
______ _____ __________ ___ _________ _________ _______ _____ _____ _____ ______ _______.
______ ___ _______ ______ ________ _____ _________ _________ ___ ____ ______.
______ _____ ______ ________ _________ ________ __________ ______ ________ __________ __________.
__________ _______ ___ ______ ______ __________ __________ __________ ___ _________ ___ ____.
___ _______ ___ __________ ____ _________ ____ ____.
___ ___ _________ _________ ________ __________ _____ __________ ____.
____ ____ _______ ________ ___ ____ _________ ________ ____ _______.
_____ ____ __________ _______ _________ _________ ________ _____.
_____ _________ _____ ___ __________ ____ ________ _______ ______ _________ __________.
__________ _________ _________ _________ _____.
________ ______ __________ ___ ___.
________ ___ _________ _____ ____ ___.
________ ______ __________ _______ ___ _______ __________.
_____ _________ _______ _________ _____ _________ ______.
_______ ________ ___ _____ __________ _________ _____ _______ ___ ________.
___ ____ _________ ___ ___ ______ __________ _____ _____.
____ ________ _____ ______ __________ __________ ____ _______ __________ _______ _______.
___ ______ _______ ___ _______ ________ __________ ________.
_____ _____ _________ _______ ______ _______ _____ _________ _______.
______ ______ ___ __________ _________ _______ __________.
_______ __________ ________ ____ ________ ___ ____ _______ _________.
___ _______ ___ __________ _________ ___ _____ _________.
_________ ____ ________ ____ _________ ___ ___ _____ ______.
______ _______ _____ _____ _____ ___ _____ ______ _______ ____ __________ _______.
___ ____ _______ __________ ______ __________ _________ ____.
__________ _______ ________ __________ __________ _________ _______.
__________ ___ _________ ___ ________ ________ _________.
________ _____ ____ ____ ________.
__________ ___ ____ _______ __________ ______ _______ _________ ________ _____.
_______ ___ _________ ________ ______ _________ ________ ______ ___.
_________ _______ _________ _____ _________ _________.
___ _____ __________ _________ _______ ________ ______ ______ ______.
____ ________ ________ ____ ____ ________ ________ _________ _________.
_____ ____ ___ _________ ________ _____ ____ ___ ___ _________ _____.
__________ __________ ______ _____ _________ ______ _____.
___ ________ _____ ________ ________ ______ _______ ____ _________ __________.
__________ _________ __________ _____ ___ _________ ______ ___ __________ ____ ____ _____.
_________ _____ ______ ____ ________ _____ _________ __________ ______ ________ __________ _____.
_______ _______ ______ __________ ____ __________ ________ _________ _______ __________ _____ ____.
________ ___ ____ __________ ________ __________ ________ _______ _____ __________ __________ _______.
________ _______ _________ ______ _______ ___ ____.
_______ ______ ________ ________ _____ __________ _________.
___ __________ _________ __________ ______ _____ ______.
_______ _______ ______ _________ ___.
________ ______ ______ ___ _____ _________ ___ ______ _____ ___ ________ ___.
_________ ___ _____ __________ ____ ________ ________.
Get Full Answer on WhatsApp