Profitability index

It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment.

Any value lower than one would indicate that the project's present value (PV) is less than the initial investment.

As the value of the profitability index increases, so does the financial attractiveness of the proposed project.

The PI is similar to the Return on Investment (ROI), except that the net profit is discounted.

We assume an investment opportunity with the following characteristics: Calculate Net present value at 6% and PI: Tp Tladi Use explained in the business book: Pursuing the Competitive Edge, Hayes, Pisano, Upton and Wheelwright.