Profitability Index =
PV Of cashflow Initial Investment
Profitability Index = Net Present Value + Initial Investment Initial Investment Above are the two formula for PI,
In the solution they have used the second formula
E.g Project R→ (NPV)5000+10000(Investment)
=
15000 Pv Of Cashflow And then apply the formula
PI= PV of Cash flow / Initial Investment
= 15000/10000
=1.5
In the same way you can find the PI of other projects
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Abhinav Pandey
Student
MUMBAI
India
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Original Message:
Sent: 06-22-2021 08:52 AM
From: Derrick Durbin
Subject: CMA Part 2 NPV
Hello,
Please see below question and answer. I am trying to understand how they go for example from a NPV of $5,000 on project R to the PV of cash flows of $15,000 in the answer. This is all the information given.
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Derrick Durbin
Controller
Graham NC
United States
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