If a PI is 1.10, what percent higher is the present value of inflows compared with the initial investment?

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Multiple Choice

If a PI is 1.10, what percent higher is the present value of inflows compared with the initial investment?

Explanation:
The main idea is how a profitability index (PI) relates PV inflows to the initial investment. A PI of 1.10 means the present value of inflows is 1.10 times the initial investment. The extra over the original investment is 1.10 − 1.00 = 0.10, which is 10%. So the present value of inflows is 10% higher than the initial investment.

The main idea is how a profitability index (PI) relates PV inflows to the initial investment. A PI of 1.10 means the present value of inflows is 1.10 times the initial investment. The extra over the original investment is 1.10 − 1.00 = 0.10, which is 10%. So the present value of inflows is 10% higher than the initial investment.

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