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

Cash flow of reverse convertibles, (a) Let's presume that the firm may defa...

(a) Let's presume that the firm may default only on last coupon payment date and that when this take place stock price would be less than some predetermined price K at the expira

Book value and liquidation value per share for common stock, Compare and co...

Compare and contrast the book value and liquidation value per share for common stock. Is one method more reliable? Explain. The Book Value of a firm's common stock is institute

Financial management, using the operating cycle and any other financial man...

using the operating cycle and any other financial management knowledge,discuss the applicability of such cycle to poultry business in Uganda(consider broilers)

Illustrate earning yield method, Q. Illustrate Earning Yield Method? Ea...

Q. Illustrate Earning Yield Method? Earning Yield Method: - As per this method, cost of equity capital is calculated by establishing a relationship between earning per share an

Explain the checklists -documenting the accounting system, Checklists or qu...

Checklists or questionnaires Audit firm will have a standard list of control questions. Audit staff can quickly ascertain which if any, are in operation by the client. There

Identify following belong income statement or the balance, Identify whether...

Identify whether the following items belong on the income statement or the balance sheet. a. Interest Expense IS                                      l. Cash BS b. Prefer

Commodities exchange, Explain the organization and function of commodities...

Explain the organization and function of commodities exchange

Financial analysis for anthony''s orchard, The Final Project for this modul...

The Final Project for this module is a consultancy report to Anthony’s Orchard, an expanding apple orchard and distributor. The company has been entertaining the idea of expanding

Legal framework-asic, Legal Framework ASIC, in order to equip itself wi...

Legal Framework ASIC, in order to equip itself with its wide-ranging functions, is empowered with additional resources and new legislative powers. Towards this, the Australian

Stabilization policies in the aa-dd model, Stabilization Policies in the AA...

Stabilization Policies in the AA-DD Model. Suppose the economy of Zion has reached the long run equilibrium (i.e. full employment). Now assume that a best-seller, written by Ne

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