##### 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?

**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.

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.