Which prescriptive analytics technique evaluates the returns to potential investments?

The prescriptive analytics technique that evaluates the returns to potential investments is often referred to as Capital Budgeting. Capital budgeting encompasses various techniques such as:

1. Net Present Value (NPV): This method calculates the present value of future cash flows generated by an investment, minus the initial investment cost. A positive NPV indicates that the investment is expected to generate more cash than it costs.

2. Internal Rate of Return (IRR): This is the discount rate at which the net present value of an investment becomes zero. It is used to estimate the profitability of potential investments. If the IRR exceeds the required rate of return, the investment is considered attractive.

3. Payback Period: This metric determines the time it takes for an investment to repay its initial cost. It is a simple way to assess the risk associated with an investment, though it does not consider the time value of money.

4. Profitability Index (PI): This index measures the ratio of the present value of future cash flows to the initial investment cost. A PI greater than 1 indicates that the investment is worthwhile.

These techniques provide a comprehensive framework for assessing potential investments, helping businesses make informed decisions about where to allocate their resources for the best possible returns.