Difference between revisions of "Profitability Index"

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(Created page with "The ''''Profitabilty Index''''' looks at the ratio of the NPV compared to the initial investment required: <math>{Profitability Index}</math> = <math>\frac{NPV}</math>{{Initi...")
 
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The ''''Profitabilty Index''''' looks at the ratio of the NPV compared to the initial investment required:
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Profitability Index
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<math>{Profitability Index}</math> = <math>\frac{NPV}</math>{{Initial\ Investment}}<math></math>
 
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Compare the following projects:
 
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{| class="wikitable"
 
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!Project
 
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!<math>C_0</math>
 
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!<math>C_1</math>
 
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!<math>C_2</math>
 
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!NPV at 10%
 
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|-
 
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|A
 
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|-10
 
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|+30
 
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|+5
 
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|21
 
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|-
 
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|B
 
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|-5
 
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|+5
 
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|+20
 
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|16
 
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|-
 
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|C
 
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|-5
 
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|+5
 
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|+15
 
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|12
 
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|-
 
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|}
 
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The profitability index would be:
 
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{| class="wikitable"
 
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!Project
 
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!Investment
 
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!NPV
 
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!Profitability Index
 
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|-
 
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|A
 
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|10
 
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|21
 
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|2.1
 
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|-
 
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|B
 
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|5
 
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|16
 
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|3.2
 
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|-
 
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|C
 
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|5
 
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|12
 
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|2.4
 
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|-
 
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|}
 
 
[[Category:finance]]
 
[[Category:finance]]
  

Revision as of 18:39, 27 August 2020

Profitability Index