Demerits of profitability index method, Financial Management

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Q. Demerits of profitability index method?

Demerits of PI method:-

(i) This method is complicated to understand and implement

(ii) Calculations in this method are complex.

(III) Internal Rate of return Method (IRR):- IRR method is as well known as marginal efficiency of capital, time adjusted rate of return, marginal productivity of capital and yield on investment.

Like the NPV method the IRR method as well takes into consideration the time value of money by discounting the cash flows. IRR is the discount rate at that present value of cash inflows is equal to the present value of cash outflows.


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