Question

Without using formulas, provide a definition of profitability index (PI).

Without using formulas, provide a definition of profitability index (PI).

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Profitability index is a capital budgeting method used to evaluate the acceptability of an investment. It is calculated by dividing the present value of the future value of the investment and initial investment and dividing both by the initial investment.

A profitability index greater than 1 is accepted since it creates more value to the company and one less than one is rejected since it reduces the value of the company. It is used for ranking different projects for investment.

In case of query, kindly comment on the solution.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Profitability Index (PI) Show formulas Wild Horse Corporation is considering a major expansion that will cost...
Profitability Index (PI) Show formulas Wild Horse Corporation is considering a major expansion that will cost SAR 22,000,000. Annual cash flows from the project are expected to be SAR 4,950,000 for 6 years. The firm uses a discount rate of 8%. Calculate the Profitablility Index (PI) of the project. (Round to 2 decimal places.)
Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of...
Gold Mining, Inc. is using the profitability index (PI) when evaluating projects. Gold Mining’s cost of capital is 6.28 percent. What is the PI of a project if the initial costs are $1,930,890 and the project life is estimated as 10 years? The project will produce the same after-tax cash inflows of $492,833 per year at the end of the year.
What is the relationship between the profitability index (PI) and the NPV? Are there any situations...
What is the relationship between the profitability index (PI) and the NPV? Are there any situations in which you might prefer one method over the other? Explain.
What is the Profitability Index (PI) of this project if the required rate is 5%? Year      ...
What is the Profitability Index (PI) of this project if the required rate is 5%? Year       CF 0          -$1614 1           $1673 2           $818 3           $694 4           $560 5           $720
What is the Profitability Index (PI) of this project if the required rate is 18%? Year...
What is the Profitability Index (PI) of this project if the required rate is 18%? Year CF 0 -$2889 1 $1252 2 $1110 3 $1445 4 $506 5 $925
What is the Profitability Index (PI) of this project if the required rate is 15%? Year      ...
What is the Profitability Index (PI) of this project if the required rate is 15%? Year       CF 0          -$3791 1           $1240 2           $851 3           $1065 4           $625 5           $621
The profitability index (PI) of a project is 1.1, and the initial investment (cost) is $10,000...
The profitability index (PI) of a project is 1.1, and the initial investment (cost) is $10,000 . What do you know about the project's net present value (NPV) and its internal rate of return (IRR)?
Profitability index Estimating the cash flow generated by $1 invested in investment The profitability index (PI)...
Profitability index Estimating the cash flow generated by $1 invested in investment The profitability index (PI) is a capital budgeting tool that provides another way to compare a project’s benefits and costs. It is computed as a ratio of the discounted value of the net cash flows expected to be generated by a project over its life (the project’s expected benefits) to its net cost (NINV). A project’s PI value can be interpreted to indicate a project’s discounted return generated...
Find the profitability index (PI) for the following series of future cash flows, assuming the company’s...
Find the profitability index (PI) for the following series of future cash flows, assuming the company’s cost of capital is 14.20 percent. The initial outlay is $495,936. Year 1: $148,027 Year 2: $167,396 Year 3: $164,126 Year 4: $172,109 Year 5: $149,333 Round the answer to two decimal places.
Find the profitability index (PI) for the following series of future cash flows, assuming the company's...
Find the profitability index (PI) for the following series of future cash flows, assuming the company's cost of capital is 10.95 percent. The initial outlay is $468,783. Year 1: 137,140 Year 2: 160,686 Year 3: 141,697 Year 4: 187,086 Year 5: 124,349 Round the answer to two decimal places.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT