Profitability Index Calculator is developed for efficient calculation of profitability index in order to analyze different capital investment opportunities. PI is a capital budgeting technique useful in evaluating various investment proposals available to investors. A project having PI greater than or equal to 1 fall in the category of investments that will pay off the costs. This technique of investment appraisal takes into account the concept of the time value of money, which makes decision-making more simplified for the management. Also, the profitability index plays a great role in capital rationing decisions.
In order to calculate the profitability index, one has to calculate the PV of expected cash inflows and the total initial investment of the project. The formula for calculating the profitability index is as follows:
Profitability Index (PI) = PV of Expected Cash Inflows / Initial Investment
Profitability Index Calculator
How to Calculate using Calculator?
The user simply has to insert the following figure in the calculator to obtain the result of the profitability index.
Present Value of Future / Expected Cash Inflows – The expected returns or future cash inflows are discounted at a rate to find out the PV of cash flows. The time value of money plays a major role in calculating the present value.
Initial Investments – The costs incurred initially plus the PV of cost, if any, expected to be incurred in the future are taken into account.
To know more about NPV – Net Present Value.