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The key difference with NPV is that PIPVI shows a value of returns per unit cash invested.
This particularly means that some Projects with higher NPV may be less attractive in PI terms in PVI terms than Projects with lesser NPV as they require a higher Initial Investment.
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The corporate investment policy usually dictates that:
- investment Projects with PI with PVI ≤ 1 should be rejected
- investment Projects with higher PIhigher PVI should have a priority over the Projects with lower PIlowe rPVI
- investment Projects with lower PIlower PVI are added up to the Investment Package to reach the pre-set value of affordable Initial Investment (I0)
- investment Projects with lower risk should have a priority over the Projects with higher risk
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Weighing the Project's risks against PIagainst PVI to include to or exclude from Investment Package is based on the Corporate Investment Policy.
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