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

External financing with same cost of capital, External Financing with Same ...

External Financing with Same Cost of Capital and Same Proportions as Existing: If a firm raises new capital funds in the same proportion as at present and at the same specific cos

What is the meaning of deviations, What is the meaning of Deviations De...

What is the meaning of Deviations Deviations must be recorded and investigated regardless of the amount involved and then assess whether deviations are isolated departures or i

Going concern in financial management, Going Concern in Financial Managemen...

Going Concern in Financial Management Going concern means in which business activities will continue for a fairly long period of time unless and until the business has entered

What is a marginal cost of capital schedule (mcc), What is a marginal cost ...

What is a marginal cost of capital schedule (MCC)?  Is the schedule always a horizontal line?  Explain. The marginal cost of capital schedule is a graphic representation of the

What is debentures, Q. What is Debentures? Debentures a debenture is an...

Q. What is Debentures? Debentures a debenture is an instrument issued by the company acknowledge its debts to its holders . it is also an important method of raising long terms

Alternative summarised version of tests of controls, Alternative summarised...

Alternative summarised version of tests of controls · Segregation of duty (staff records are separate from wages department) · Documentation ( written evidence ) ·

Explain and derive the international fisher effect, Explain and derive the ...

Explain and derive the international Fisher effect. Answer:  The international Fisher effect can be acquired by combining the Fisher effect and the relative version of purchasi

Describes net operating income approach to capital structure, Q. Describes ...

Q. Describes Net Operating Income Approach to Capital Structure? NOI (Net Operating Income Approach):- This is another speculation of capital structure which is propounded by '

Tests in investments, Tests in Investments There are many rules that sp...

Tests in Investments There are many rules that specify how the past data of share prices can be used to obtain a clue regarding the future prices of shares. Such rules would be

Explain about receivables management, Q. Explain about receivables manageme...

Q. Explain about receivables management? Receivable Management: - The term receivables demote to debt owed to the firm by the customers resulting from sale of goods or else ser

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