Asked by: Yohana Encore Moiasked in category: General Last Updated: 26th April, 2020
How can profitability index help in identifying the feasibility of a project?
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.