Ad

Profitability Index Calculator

# Profitability Index Calculator

The profitability index formula calculates a project’s profitability based on its future discounted returns relative to the initial investment.(PI) Profitability Index is equal to (PV) Present Value Of future cash flows (INR) Divided to Initial Invesment.

**Formula us,**

PI = PV of future cash flows / Initial investment,

or

PI = Discounted benefit / Discounted cost,

**let us consider,**

**PV is the present value of future cash flows**. PV is a method of discounting future cash to its current value.**Discount rate**: Discount rates are determined by the cost of the capital needed to implement a project.*If you want to learn more about how to determine discount rates, check out the Weighted average cost of capital (WACC) calculator.***Initial investment is the cost of capital**needed to initiate the project, recorded as the only outflow (-).

**Example For Profitability Index **

PI = 1 + NPV / initial investment.

The initial investment of $400,000 . The future cash flows of five years from the poultry sales are discounted at a rate of 10%, the total sum of the present value (PV) is $700,000.

PI = PV of Future Cash Flows / initial investment

PI = 4,00,000 / 700,000

The answer is 1.75