Project Profitability Index Formula
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As one would expect the NPV stands for the Net Present Value of the initial investment.
Project profitability index formula. Profitability Index is a measure used by firms to determine a relationship between costs and benefits for doing a proposed project. All you need to do is to find out the present value of future cash flows and then divide it by the initial investment of the project. The Formula The profitability index is calculated by dividing the present value of future cash flows by the initial cost or initial investment of the project.
It is calculated as the ratio of present value of a project cash flows and the initial investment. The PV of future cash flows does not include the initial investment. 160266318 1500000 10684.
A determining factor in calculating the profitability index is the present value of future cash flows that the investment and therefore the project should return. Profitability Index PV of future cash flows Initial investment. The formula for Profitability Index is simple and it is calculated by dividing the present value of all the future cash flows of the project by the initial investment in the project.
Present value of future cash flows. The profitability index PI is a measure of a projects or investments attractiveness. Profitability Index 20000 5000 20000 125.
Profitability Index Present Value of Future Cash Flows Initial Investment Required. The equation is as follows. Heres the Profitability Index formula Profitability Index PV of Future Cash Flows Initial Investment Examples of Profitability Index Formula With Excel Template.
Profitability index PI also known as profit investment ratio PIR and value investment ratio VIR is the ratio of payoff to investment of a proposed project. It only includes the inflows or future returns. Calculate the profitability index by dividing the present value of the expected cash flows from a project by the present value of the capital investments of a project.
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