The investment that generates cash flows for the longer period of time may not offer the best return.
If the net after-tax flows (discounted, presumably) equal the initial investment, then the net present value of the project will be zero and the investor will be indifferent to the project.
The Profitability Index enables us to compare (or rank) the benefit/cost ratios of different sized investments, since the Profitability Index expresses profitability on a percentage basis rather than a total dollar amount basis. It is very useful when we must compare multiple investments that are of different investment amounts.
The investment that has the greater accounting rate of return may not offer the best return on a discounted cash flow basis.
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