The NPV and PI both consider the time value of money and result in the same accept or reject decision when
considering an independent project. The main difference between the two is that the PI may be useful in determining which projects to accept if funds are limited;
however, the PI may lead to incorrect decisions when considering mutually exclusive investments
Profitability index is the "rolling forward" of indices of profitability. For example, a company has a turnover of
Yes, The PI and NPV always give the same decisions to accept or reject the projects. The Project's PI will be greater than 1.00 if the NPV is positive and PI will be less than 1.00 if the NPV is negative
Profitability index criteria can be used to select projects when a capital rationing situation exists, with the highest profititibility index from specified projects being the goal.
Disadvantages of Profitability Index are:-Only used for divisible projectsstrategic value of projects are not considered.( only figures are dealt with not long term not short termlimited use when protect have differing cash flow pattern. ( only limited to investment with major cash at the beginning)absolute NPV vale is ignored, smaller projects receive more favourable treatment ( the equation treats all project as equally important.R.ogunleye university of Herfordshire (UK)
Index funds are a type of mutual fund that invests in the stocks of a specific market index, attempting to maintain a value per unit that tracks that index.
Profitability index is the "rolling forward" of indices of profitability. For example, a company has a turnover of
Dividing the present value of the annual after-tax cash flows by the cost of the project
Profitability indexes are not hard to come by. To create one you must go online to a profitability website in which they have step by step instructions according to the index you need.
discounted payback period
less than zero, greater than the requred return
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Economic differences between different regions of a country
Profitability Index
An index ratio typically refers to a comparison between two index values, often highlighting the relative performance or change between them. It is calculated by dividing one index value by the other and can be used to assess trends, differences, or shifts in data sets represented by the indices.
Ray I. Reul has written: 'Profitability index for investments' -- subject(s): Capital investments
Profitability Index AdvantagesTells whether an investment increases the firm's valueConsiders all cash flows of the projectConsiders the time value of moneyConsiders the risk of future cash flows (through the cost of capital) Useful in ranking and selecting projects when capital is rationedDisadvantagesRequires an estimate of the cost of capital in order to calculate the profitability indexMay not give the correct decision when used to compare mutually exclusive projects
An index is at the front of a book and lists the chapters or topics in a book and the pages they start on. A directory lists individuals and/or organizations alphabetically with details such as names, addresses, and phone numbers. A phone book is an example of a directory.