Economics and Profitability index: Difference between pages

Revision as of 21:24, 11 April 2016

(PI).

The profitability index may be represented by the following formula:

Profitability index = PV/Co

Where:

PV = the present value of all the cashflows except the initial investment.

Co = the absolute value of the initial investment.

Calculated on this basis, projects with a PI > 1 are acceptable.

The profitability index may also be represented by the following alternative formula:

Profitability index = NPV/Co

Where:

NPV = net present value of all positive and negative cashflows, including the initial investment outflow Co

When defined on this alternative basis, the minimum threshold of acceptability becomes a profitability index of 0.

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-Economics is the social science that seeks to understand the interaction between people and the production, distribution, and consumption of goods and services.
+(PI).
-The study of economics provides a platform for understanding business and a reference framework for business systems and techniques.
+The profitability index may be represented by the following formula:
+Profitability index = PV/Co
+Where:
+PV = the present value of all the cashflows except the initial investment.
+Co = the absolute value of the initial investment.
+Calculated on this basis, projects with a PI > 1 are acceptable.
+==Alternative definition==
+The profitability index may also be represented by the following alternative formula:
+Profitability index = NPV/Co
+Where:
+NPV = net present value of all positive and negative cashflows, including the initial investment outflow Co
+When defined on this alternative basis, the minimum threshold of acceptability becomes a profitability index of 0.
 == See also ==
-* [[Econometrics]]
+* [[Capital rationing]]
-* [[Economic environment]]
+* [[Present value]]
-* [[Economy]]
-* [[Finance]]
-* [[Macroeconomics]]
-* [[Microeconomics]]
-* [[Wants]]
-[[Category:The_business_context]]
-[[Category:Financial_products_and_markets]]