Profitability index Calculation

Written by:Abraham A.
Location:DCF Analysis

Finance.ThinkAndDone.com provides you an online tool to perform profitability index calculations from a series of future cash flows. PI or B/C ratio refers to the ratio of discounted benefits over discounted costs; a profitability index higher than 1 makes an investement profitable. At a profitability index of 1, the investment barely breaks even and a B/C ratio less than 1 suggest that investing in a project will lead to loses. This online profitability index tool lets you see step by step workout for the calculations performed to calculate profitability index.

Location: DCF Analysis

Profitability index Calculation

Developed by:Emma A.
Location:Financial Calculations
type in the authorization code in the box located below:

Results

Discounted Costs
DCF0 = -100000 / (1+0.04)0 = -100000
DCF6 = -10000 / (1+0.04)6 = -7903.15
PV Costs=   107903.15
Discounted Benefits
DCF1 = 35000 / (1+0.04)1 = 33653.85
DCF2 = 35000 / (1+0.04)2 = 32359.47
DCF3 = 35000 / (1+0.04)3 = 31114.87
DCF4 = 35000 / (1+0.04)4 = 29918.15
DCF5 = 35000 / (1+0.04)5 = 28767.45
PV Benefits=   155813.79
Profitability index formula

Profitability Index = Discounted Benefits / Discounted Costs
Profitability Index = 155813.79 / 107903.15
Profitability Index = 1.44

Input Data

type in the discount rate:  %
type in net cash flows in the space below:

Instructions

To perform profitability index calculation with this online took, you need to type in the series of net cash flows along with the discount rate usually the WACC. The instructions listed below provide guidance in using this online tool

    -100000 35000 35000 35000 35000 35000 -10000
  • A discount rate has to be entered such as 5
  • Clicking on the CALCUALTE button will show detailed step by step workout for profitability index calculation