Definition for : Present Value Index, PVI
Sometimes there is a strict capital constraint (see Capital rationing) imposed on the firm, and it is faced with more NPV positive projects than it can afford. In order to determine which project to pursue, the best formula to use is the Present value Index. This is the Present value of cash inflows divided by the Present value of cash outflow: PVI = PV of inflows/PV of outflows.
(See Chapter 16 The time value of money and net present value of the Vernimmen)
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