Asked by: Yohana Encore Moi
asked in category: General Last Updated: 26th April, 2020

How can profitability index help in identifying the feasibility of a project?

The profitability index helps make it possible to directly compare the NPV of one project to the NPV of another to find the project that offers the best rate of return. Suppose you have the opportunity to start a lemonade stand for $100.

Click to see full answer.


Furthermore, what is the profitability index of the project?

Profitability index (PI), also known as profit investment ratio (PIR) and value investment ratio (VIR), is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment.

Secondly, how is the project profitability index computed and what does it measure? Answer The profitability index is computed by dividing the present value of the cash inflows from an investment project. The index measures the amount of cash inflow provided by each dollar of investment in a project.

Also Know, how do you determine the profitability of a project?

Profitability index shows the relationship between company projects future cash flows and initial investment by calculating the ratio and analyzing the project viability and it is calculated by one plus dividing the present value of cash flows by initial investment and it is also known as profit investment ratio as it

What does the profitability index tell you?

The Profitability Index (PI) measures the ratio between the present value of future cash flows and the initial investment. The index is a useful tool for ranking investment projects and showing the value. It can apply to products, services, companies, management, and other areas of business.

31 Related Question Answers Found

What are the advantages of profitability index?

What is the formula for profitability ratio?


What is the present value index?

What is the present value formula?

What is profitability index with example?


What is pi method?

How do you determine profitability?

What do you mean by profitability?


What is a good benefit/cost ratio?

What is the relationship between the profitability index and NPV?

How do you find the present value of future cash flows?


What is accounting rate of return formula?

What is a good IRR?