Question

What is profitability Index? Which is a superior criterion-Profitability Index or Net Present Value?

  1. What is profitability Index? Which is a superior criterion-Profitability Index or Net Present Value?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Profitability Index measures the proportion of dollar earned to a dollar cost of investment. If the Profitability Index is > 1, then the project is acceptable. Higher the PI, higher is the profitability of the index.

PI is used to compares and rank many investments based on the profitability of each investment.

NPV is a superior criterion because it measures the magnitude of the profit while PI is used only to compares and rank many investments based on the profitability of each investment.

Can you Please upvote? Thank You :-)

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
What is the profitability index? Why is this better than the net present value method when...
What is the profitability index? Why is this better than the net present value method when you’re trying to compare investments of different sizes?
When using a profitability index (ratio of net present value to initial investment) to select projects,...
When using a profitability index (ratio of net present value to initial investment) to select projects, a value of 1.63 is preferred over a value of 1.21. True False
You have just completed an analysis of an investment. You used Net Present Value, Profitability Index...
You have just completed an analysis of an investment. You used Net Present Value, Profitability Index and Internal Rate of Return. Your boss has just asked you for the payback. What will you tell him/her?
Exercise 24-11 Net present value, profitability index LO P3 Following is information on two alternative investments...
Exercise 24-11 Net present value, profitability index LO P3 Following is information on two alternative investments being considered by Tiger Co. The company requires a 7% return from its investments. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.) Project X1 Project X2 Initial investment $ (86,000 ) $ (132,000 ) Expected net cash flows in year: 1 28,000 64,500 2 38,500 54,500 3 63,500 44,500 a. Compute each...
Calculate the profitability index anx the net present value of the following project year 0 investment...
Calculate the profitability index anx the net present value of the following project year 0 investment 75,000 year 1. income. 25,000 year 2. income. 35,000 year 3. investment. 10,000 year 4. income. 40,000 discount rate. 9%
The net present value, internal rate of return, and the profitability index methods can give different...
The net present value, internal rate of return, and the profitability index methods can give different rankings to mutually exclusive projects in certain cases. Which of the following is one of the possible reasons that causes contradictory rankings? A. Project lives of different durations B. Projects have similar costs C. Projects have a similar trend of cash flows D. Projects have different accounting rates of return
Net present value is only a financial and economic criterion for selecting a project. What other...
Net present value is only a financial and economic criterion for selecting a project. What other factors may be important in accepting the project?
Net present value is only a financial and economic criterion for selecting a project. What other...
Net present value is only a financial and economic criterion for selecting a project. What other factors may be important in accepting the project?
Define the profitability index and explain how it may be used a criterion for determining whether...
Define the profitability index and explain how it may be used a criterion for determining whether to pursue an investment or project
The profitability index makes up for what drawback to the NPV method? no objective decision criterion...
The profitability index makes up for what drawback to the NPV method? no objective decision criterion the NPV's reinvestment rate assumption the lack of consideration of cashflows occurring late in the project's life the NPV being an absolute (not relative) measure
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT