Profitability Index is the measure of productivity of money means how much do we get for every single unit of money we spend.This is crucial when money is in short supply
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
PI is the ratio of present value of Inflow to present value of outflow with cost of capital being used as the discount rate.
Steps in computation:
Step1: Compute Present Value (PV) of Inflow
Step2: Compute PV of Outflow
Step3: PVI / PVO (Step1 / Step2)
If the index is greater than one the project will be selected
Between two project one with higher PI will be selected
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
PI is the ratio of present value of Inflow to present value of outflow with cost of capital being used as the discount rate.
Steps in computation:
Step1: Compute Present Value (PV) of Inflow
Step2: Compute PV of Outflow
Step3: PVI / PVO (Step1 / Step2)
If the index is greater than one the project will be selected
Between two project one with higher PI will be selected
