Asked by Tristan Gebbia on Jul 12, 2024
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The profitability index is computed by dividing the present value of net cash flows by the initial investment.
Profitability Index
A financial metric that measures the relative profitability of an investment by dividing the present value of future cash flows by the initial investment cost.
Present Value
Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.
Net Cash Flows
The difference between a company's cash inflows and outflows over a specific period.
- Absorb the principles of the net present value method and its essential function in capital allocation decisions.
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Learning Objectives
- Absorb the principles of the net present value method and its essential function in capital allocation decisions.
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