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Profitability Index (PI) Calculator
Result
Date publish: 19.09.2024
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Author: Calcwizard
Understanding the Profitability Index (PI)
The Profitability Index (PI) is a financial metric used to assess the attractiveness of an investment. It is calculated by dividing the present value of future cash flows by the initial investment cost. A PI greater than 1 indicates that the investment is expected to generate value, while a PI less than 1 suggests that the investment may not be worthwhile.
How to Calculate the Profitability Index
The formula for calculating the Profitability Index is:
PI = Present Value of Future Cash Flows / Initial Investment
Example Scenarios
Here are some examples to illustrate how the Profitability Index works:
| Investment Cost | Future Cash Flows | Profitability Index (PI) |
|---|---|---|
| $100,000 | $120,000 | 1.2 |
| $150,000 | $130,000 | 0.87 |
| $200,000 | $250,000 | 1.25 |
| $80,000 | $90,000 | 1.12 |
When to Use the Profitability Index
The Profitability Index is particularly useful when comparing multiple investment opportunities. It helps investors prioritize projects based on their potential returns relative to their costs. A higher PI indicates a more attractive investment option.
Conclusion
Using the Profitability Index (PI) Calculator can simplify your investment decision-making process. By evaluating the PI of different projects, you can make informed choices that align with your financial goals.
