## What is discounted profitability index

The profitability index is a capital budgeting technique that compares present value of future inflows with the initial outflow, in ratio terms. It is calculated by dividing the present value of cash flows by initial investment of a project. Accept projects with a profitability index greater than 1 and reject those with less than 1. If the profitability index is greater than 1, the project is accepted, and if it is less than 1, the project is rejected. Let’s see how profitability index can be calculated in excel. Let us say that we are examining a project, which requires an initial investment of $10,000, and after the will give us cash flow of $3,000, $4,000, $2,000 What is the profitability index for the set of cash flows if the relevant discount rate is 10 percent? What is the profitability index for the set of cash flows if the relevant discount rate is 15 percent? What is the profitability index for the set of cash flows if the relevant discount rate is 22 percent? Explanation: Profitability index is actually a modification of the net present value method. While present value is an absolute measure (i.e. it gives as the total dollar figure for a project), the profibality index is a relative measure (i.e. it gives as the figure as a ratio).

## If NPV is possitive, it would indicate that rate of return is greater than discount Restated, the profitability index is the ratio of the discounted net cash inflows to

The profitability index (PI) refers to the ratio of discounted benefits over the discounted costs. It is an evaluation of the profitability of an investment and can be compared with the profitability of other similar investments which are under consideration. the profitability index is also referred to as benefit-cost ratio, cost-benefit ratio, or even capital rationing. Profitability Index is the ratio of the present value of future cash flows of the project to the initial investments in the project. This index helps in cost-benefit analysis of investment projects and helps them rank in order of the best return on initial investments. Profitability Index = (PV of future cash flows) ÷ Initial investment Or = (NPV + Initial investment) ÷ Initial Investment: As one would expect, the NPV stands for the Net Present Value of the initial investment. Discounted profitability index (DPI) Expanded version of the profitability index (PI) The profitability index (also referred to as the benefit-cost ratio) is the present value of future cash flows divided by the initial investment. The profitability index differs from NPV in one important respect: since it is a ratio, it provides no indication of the size of the actual cash flows. For example, a project with an initial investment of $1 million, and present value of future cash flows of $1.2 million, would have a profitability index of 1.2. If it is equal to 1, then the profitability index tells us the project generates a return equal to the discount rate. The Profitability Index (PI) or profit investment ratio (PIR) is a widely used measure for evaluating viability and profitability of an investment project. It is calculated by dividing the present value of future cash flows by the initial amount invested.

### Net present value; Internal rate of return; Payback period; Profitability index A common practice in choosing a discount rate for a project is to apply a WACC

What is the Profitability Index? Profitability index shows the relationship between company projects future cash flows and initial investment by calculating the ratio 20 Apr 2019 Profitability Index is a capital budgeting tool used to rank projects based on their profitability. It is calculated by dividing present value of all cash The profitability index (PI) refers to the ratio of discounted benefits over the discounted costs. It is an evaluation of the profitability of an investment and can be 24 Jul 2013 Use the Profitability Index Method Formula and a discount rate of 12% to determine if this is a good project to undertake. A profitability index of .85 for a project means that: the present (Hint: With a desired IRR of 8%, use the IRR formula: ICO = discounted cash flows.) $16,775 DPI (Discounted profitability index). It is calculated as the ratio of net present value to initial investment. If the indicator is greater than 1, the investment of capital

### Explanation: Profitability index is actually a modification of the net present value method. While present value is an absolute measure (i.e. it gives as the total dollar figure for a project), the profibality index is a relative measure (i.e. it gives as the figure as a ratio).

DPI (Discounted profitability index). It is calculated as the ratio of net present value to initial investment. If the indicator is greater than 1, the investment of capital Profitability Index Calculator to calculate the profitability of an investment or If a business requires an initial investment of $100,000 with a discount rate of 10% 12 Sep 2019 Other measures include the payback period, discounted payback period, average accounting rate of return (AAR), and the profitability index Profitability index (PI) is another tool used in capital budgeting to measure the Calculate the profitability index assuming 10% discount rate and $200 million The profitability index (PI) tries to solve this NPV limitation by comparing future net revenues discounted to present value. This enables comparisons between the Actually, profitability index is similar to net present value (NPV) in this regard given that both apply the element of time value and discount a rental property's r – discount rate,; I0 – initial investment. We can also make the profitability index formula more

## DPI (Discounted profitability index). It is calculated as the ratio of net present value to initial investment. If the indicator is greater than 1, the investment of capital

r – discount rate,; I0 – initial investment. We can also make the profitability index formula more NPV (or IRR) users who want to use the discount rate as a proxy for risk generally have one main question: What is the appropriate risk-adjusted discount rate that Net present value; Internal rate of return; Payback period; Profitability index A common practice in choosing a discount rate for a project is to apply a WACC Profitability Index Method 4. Terminal Value Method. Capital This method discounts all cash flows (including both inflows and outflows) at the The profitability index is determined by dividing the present value of each 39) Which of the following ignores late cash flows? I. Profitability index. II. Discounted payback period. III. Net present value. IV. Payback period a) I and III only. 18 Nov 2019 The profitability index (PI) of a project is the ratio of the present value of The discount rate (value the business places on its money) is very

Profitability Index = (PV of future cash flows) ÷ Initial investment Or = (NPV + Initial investment) ÷ Initial Investment: As one would expect, the NPV stands for the Net Present Value of the initial investment. Discounted profitability index (DPI) Expanded version of the profitability index (PI) The profitability index (also referred to as the benefit-cost ratio) is the present value of future cash flows divided by the initial investment. The profitability index differs from NPV in one important respect: since it is a ratio, it provides no indication of the size of the actual cash flows. For example, a project with an initial investment of $1 million, and present value of future cash flows of $1.2 million, would have a profitability index of 1.2. If it is equal to 1, then the profitability index tells us the project generates a return equal to the discount rate. The Profitability Index (PI) or profit investment ratio (PIR) is a widely used measure for evaluating viability and profitability of an investment project. It is calculated by dividing the present value of future cash flows by the initial amount invested. By dividing the present value of the property’s future cash flows by the initial investment, we get the profitability index. If the profitability index is over 1.0, then the profitability is positive, but if it is below 1.0 then the investment will probably fail. To put it another way, profitability index is constituted of the ratio between the present value of future cash flows and the initial investment.