A method used in discounted cash flow for ranking a range of projects under consideration in which standard cash flow patterns are projected. It is based on the ratio:
total present values of cash inflows/initial investment,
the value of which is compared for each project.
The projects with a PI of less than 1 are not expected to earn the required rate of return and are rejected. The projects with a PI in excess of 1 are ranked according to the magnitude of the PI.
Subjects: Financial Institutions and Services — Accounting.