The Profitability Index
Schill, Michael J.
The Profitability Index
F-1945 | Published March 26, 2020 | 2 pages Technical Note
Collection: Darden School of Business
Product Details
The well-known net present value (NPV) rule advocates accepting all investment projects that have a positive NPV. The NPV rule makes economic sense since positive-NPV projects are expected to create economic value. But what should a manager do if the total investment capital needed to fund the available positive-NPV projects exceeds the budgeted capital available? This note illustrates and discusses the profitability index, one tool that is used to assist managers in such constrained situations.
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