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Profitability Index (PI) is an important capital budgeting technique used to evaluate and rank investment proposals. It is also known as the Benefit-Cost Ratio. The method establishes a relationship between the present value of future cash inflows and the initial investment required for a project. It is particularly useful when a firm has limited funds and has to select the most profitable projects from several investment opportunities. The Profitability Index is calculated as: Profitability Index = Present Value of Future Cash _____ _________ ________ ___ _________ ____ ________ ___ ____.
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