Investment Decision Rules - Choosing Among Projects When Resources Are Limited
3 important questions on Investment Decision Rules - Choosing Among Projects When Resources Are Limited
What does the Profitability Index measure?
The NPV per unit of resource
How do you calculate the Profitability Index (PI)?
Profitability Index = NPV devided by Resource Consumed
How do you select the best combination of projects using the Profitability Index (PI)?
By ranking the projects by PI and choose the highest combination of resources used and highest PI
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