The profitability index (PI) is a financial metric that measures the relationship between the present value of future cash flows generated by an investment and the initial investment cost. It helps assess the attractiveness of a project by indicating how much value is created per unit of investment, with a PI greater than 1 suggesting a good investment opportunity. This index is especially useful in capital budgeting as it allows decision-makers to compare different projects with varying scales of investment and cash flows.
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