Advantages and Disadvantage of Profitability Index

Advantages of profitability index

a) Simple to understand and utilize.

b) The part of NPV in the venture will show that venture is more powerful as the most profitable venture will contain the highest P.I. like the difference or total P.I. will continue to the company's profitability.

c) It allows time value for money and at the similar time the NPV of a venture at its present value that is consistent by investment appraisal requirements.

Disadvantages of profitability index

a) It may be helpful under situation of uncertain cost of finance used to discount inflows and yet this cost is a complex item because of the explicit and implicit part.

b) It may be not easy to ascertain whether the economic life of a venture is long and it yields large inflows since their discounting may call for utilize of computers such are expensive.

Posted Date: 1/31/2013 1:21:44 AM | Location : United States

Ask an Expert

Related Discussions:- Advantages and disadvantage of profitability index, Assignment Help, Ask Question on Advantages and disadvantage of profitability index, Get Answer, Expert's Help, Advantages and disadvantage of profitability index Discussions

Write discussion on Advantages and disadvantage of profitability index
Your posts are moderated

Write your message here..

Related Questions

Journal entries, Sam start business with his savings $20000, a gift from hi... Sam start business with his savings $20000, a gift from his parents $10000 and a personal loan from his friends of $5000. All money is deposited in a bank account.

Homework, the two problems below (P1 and P2). Five marks each. Part marks w... the two problems below (P1 and P2). Five marks each. Part marks will be allocated, but if you have the incorrect answer then you cannot expect to get more than half marks. Project

OPTION, DEFINE THE TERM OPTION IN DETAIL? DEFINE THE TERM OPTION IN DETAIL?

The profitability index for the investment, Question   Clifton-Peters L... Question   Clifton-Peters Ltd is a manufacturer of household goods located in Melbourne. They presently make and wholesale fruit juicers, blenders and baking equipment. The Gen

Mobile computing, what is mobile computing what is mobile computing

Shareholders - measuring business performance, Shareholders - Measuring Bus... Shareholders - Measuring Business Performance Shareholders Actual owners are interested in the company's both short and long term survival.  For this cause they will need

Reasons for major growth in venture capital, Reasons for major Growth in Ve... Reasons for major Growth in Venture Capital Reasons for Significant Growth in the Developed Countries in Venture Capital i) Public attitude that is a favorable attitude

Explain mechanics of security trading in stock exchange, Explain Mechanics ... Explain Mechanics of security trading in Stock Exchange Introduction: An investor should have some knowledge of how the securities markets operate. Marketing of old or new se

How is finance related to the accounting and economics, How is finance rela... How is finance related to the disciplines of accounting and economics? Financial management is necessarily a combination of economics and accounting. First, financial managers

Effective financial management, Financial management is very important for ... Financial management is very important for any organization as at the end what does matter is the money. An effective financial management is of high importance for ensuring the be