ECONOMICS

Detailed explanation-1: -For example, a project with an initial investment of $1 million and a present value of future cash flows of $1.2 million would have a profitability index of 1.2. Based on the profitability index rule, the project would proceed, even though the initial capital expenditure required are not identified.

Detailed explanation-2: -The profitability index (PI) is a measure of a project’s or investment’s attractiveness. The PI is calculated by dividing the present value of future expected cash flows by the initial investment amount in the project.

Detailed explanation-3: -A Principal Investigator or PI is the individual responsible for the preparation, conduct, and administration of a research grant, cooperative agreement, training or public service project, contract, or other sponsored project.

Detailed explanation-4: -If the PI is greater than 1, the project generates value and the company may want to proceed with the project. If the PI is less than 1, the project destroys value and the company should not proceed with the project.