Describe about profitability index, Financial Management

Assignment Help:

Q. Describe about Profitability Index?

Profitability Index OR (PI):- Second method of estimate a project through discounted cash flows is profitability index method. This method is also called Benefit-Cost Ratio.

This method is alike to NPV approach. A main drawback of the NPV method was that it doesn't give satisfactory results while evaluating the projects requiring different initial investments. PI method offers a solution to this problem.

PI =    Present Value of Cash Inflows/ Present Value of Cash Outflows

Accept-Reject Criteria:-

  • If PI is in excess of one the project will be accepted
  • If PI is below one, the project will be rejected.
  • If PI is one project perhaps accepted only on the basis of non-financial considerations.

 


Related Discussions:- Describe about profitability index

Compare and contrast mutual and stockholder, Compare and contrast mutual an...

Compare and contrast mutual and stockholder-owned savings and loan associations. A few savings and loan associations are owned by stockholders, just like commercial banks and ot

This case has been framed in order to test the skill, Ask ques1. How would ...

Ask ques1. How would you judge the potential profit of Bajaj Electronics on the first year of sales to Booth Plastics and give your views to increase the profit? 2. Suggestion rega

Inventory turnover, Inventory T ur nover In the accounting, ...

Inventory T ur nover In the accounting, a measure of the number of times that the average amount of inventory on hand is sold within a given time of period. In the o

What is cash credit, Q. What is Cash Credit? A cash credit is an arrang...

Q. What is Cash Credit? A cash credit is an arrangement by which a bank allows his customer to borrow money up to a certain limit against some tangible securities or guarantees

Bureaucratic management, nestle is an orgnization wether bureacratic approa...

nestle is an orgnization wether bureacratic approach approperiate for the organizational performance or not?

What is a sunk cost, What is a sunk cost?  Is it relevant when evaluating a...

What is a sunk cost?  Is it relevant when evaluating a proposed capital budgeting project?  Explain. A sunk cost is a cash flow that has already takes placed, or that will take

What do you signify by receivables management, Q. What do you signify by Re...

Q. What do you signify by Receivables Management? Ans. Receivable Management: - The term receivables refer to debt outstanding to the firm by the customers resulting from sale

Types of asset-backed securities, Types ...

Types of asset-backed securities 1.  Auto Loan-Backed Securities (ALBs) 2.  Credit Card Receivab

Cash flow statement, Given below are the cash flows of a project. Find out ...

Given below are the cash flows of a project. Find out the net present value of the project. Cost of capital is 18% and initial investment is Rs. 2,00,000. Year Cash Flows (lakhs)

Determine the net present value, The following information pertains to Fair...

The following information pertains to Fairways Driving Range, Inc.: The company is considering operating a new driving range facility in Sanford, FL. In order to do so, they wi

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd