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Profitability Index (PI) is computed as:
ACash inflow / Profit
BNPV / Initial investment
CPV of inflows / Initial investment
DNet Profit / Sales
Answer & Solution
Correct answer: C. PV of inflows / Initial investment
1. PI = (PV of cash inflows) / Initial Investment.
2. PI > 1 ⇒ NPV > 0 ⇒ accept the project.
3. Useful for capital rationing — ranks projects by PV per rupee invested.
_Source: ICAI BoS CA Inter Paper 6A, Ch 7 "Investment Decisions", §9 — PI_