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FM11 40 - It measures the “bang for the buck.” PI S =...

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125 250 375 500 -125 -250 -375 100 200 300 400 500 600 Cost of Capital, r (%) NPV i. What does the profitability index (PI) measure? What are the PIs for Franchises S and L? Answer: The PI is equal to the present value of all future cash flows divided by the initial cost.
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Unformatted text preview: It measures the “bang for the buck.” PI S = $119.98 / $100 = 1.1998. PI L = $118.78 / $100 = 1.1878. Mini Case: 11 - 40...
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