What is the projects profitability index?

Expert Solution

Project’s Profitability Index (PI)

-The Project’s Profitability Index (PI) is the ratio of discounted annual cash inflows divided by it’s initial investment cost.

-The Profitability Index (PI) is calculated by dividing the present value of benefits by present value of costs

-It considers the relative size of the initial investment costs.

-Based on Profitability Index Analysis method, the Investment should be selected if the Profitability Index is greater than 1, else the Project should be rejected.

-If the Profitability Index (PI) is greater than 1, then the Project should be accepted.

-If the Profitability Index (PI) is less than 1, then the Project should be rejected.

-The Profitability Index is the ratio of discounted annual cash inflows divided by it’s initial investment cost. The Profitability Index (PI) is calculated by dividing the present value of benefits by present value of costs. It considers the relative size of the initial investment costs.

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