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| Net Present Value | ||||
| Initial Investment |
The key difference with NPV is that PI shows a value of returns per unit cash invested.
This particularly means that projects with higher NPV may be less attractive in PI terms as it required a high initial investment.NPV dictates that commercial project should not only be just profitable but instead should be on par with or more profitable than easily available investment alternatives
The corporate investment policy usually dictates that:
investment projects with negative NPV should with PI <= 1 should be rejected
investment projects with higher NPVPI should have a financing priority over the projects with lower NPVlower PI
See also
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