Enter your values in the Profitability Index calculator. The cash flow for each year (in the second entry box) should be separated by a comma. Example is included below.
How to use the Profitability Index Calculator
Let's suppose that you want to derive the Profitability Index, given the following information:
- The initial investment is $1300
- The project is expected to generate:
- $500 in year-1
- $750 in year-2
- $800 in year-3
- The discount rate is 7%
You may then plug the values in the calculator, and then click on the Calculate Profitability Index button:
You'll then get the Profitability Index of 1.366:
Since the Profitability Index is greater than 1, then you should consider to invest in the project.
How to Manually Calculate the Profitability Index
You can use the following equation to manually calculate the Profitability Index:
NPV
Profitability Index (PI) = 1 + Initial investment
Where NPV is the Net Present Value.
Let's now see how to derive the Profitability Index, given the following information:
- The initial investment is $1300
- The Net Present Value (NPV) is = 475.407
Plug the values in the equation, and you'll get the Profitability Index (PI) of 1.366:
NPV 475.407 Profitability Index (PI) = 1 + Initial investment = 1 + 1300 = 1.366
Since the PI is greater than 1, then you should consider to invest in the project.