*Min of 350 words*
Discuss the profitability index and describe how it is used in capital investment decisions.
Companies with the approach of investment uses various types of methods or indexes to predict the future outcome of their investments. They make certain investments after making proper analysis. These analysis are carried out using various tools.
One of the most reliable source of prediction in the use of profitability index in determining whether such an investment should be made or not.
Profitability Index(PI) is the index, which gives us the analysis about the investment which we are going to make. PI determines whether such investment is profitable or not.
While calculating the PI, the present value of future cash flows is calculated and then it is divided by the initial investment made.
OR
PI = P.V of future cash flows/initial investment.
Now, we get three types of Profitability Index (PI)
Advantages of Profitability index
Disadvantages of Profitability index
*Min of 350 words* Discuss the profitability index and describe how it is used in capital...
Profitability index – Write a paper about the use of the profitability index. It is a ratio that provides information about the present value of net cash flows to the net investment. It provides a measure of the relative present value return for each dollar of initial investment. Discuss its usefulness. Should managers rely upon it? Consider its usefulness in a capital rationing situation (capital investment under conditions of financial restraint). Requirements: 500 words,
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