Because the NPV and PI methods both yield the same accept/reject decision,a company attempting to rank capital budgeting projects for funding consideration can use either method and get the same results.

Question

Quizplus · Accepted Answer

While both NPV (Net Present Value) and PI (Profitability Index) methods will generally lead to the same accept/reject decision for a single project (i.e., a project is acceptable if NPV > 0 or PI > 1), they may not rank projects in the same order when considering multiple projects due to differences in scale and investment size. NPV provides an absolute dollar value of an investment's worth, whereas PI gives a relative value ratio, which can lead to different rankings when comparing projects of different sizes.

Because the NPV and PI Methods Both Yield the Same