Practice Profitability Index (PI) - 25.5.B.3 | 25. Capital Budgeting Techniques | Management 1 (Organizational Behaviour/Finance & Accounting)
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25.5.B.3 - Profitability Index (PI)

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Learning

Practice Questions

Test your understanding with targeted questions related to the topic.

Question 1

Easy

What is the definition of Profitability Index?

💡 Hint: Remember, it reflects the efficiency of an investment.

Question 2

Easy

What indicates a potentially profitable project using PI?

💡 Hint: Think about what 'greater than' signifies in investing.

Practice 4 more questions and get performance evaluation

Interactive Quizzes

Engage in quick quizzes to reinforce what you've learned and check your comprehension.

Question 1

What does a PI greater than 1 indicate?

  • The project should be rejected
  • The project is likely profitable
  • The project is unfeasible

💡 Hint: Think about profitability.

Question 2

The calculation of the Profitability Index requires which estimation?

  • True
  • False

💡 Hint: What do we need to factor in for future cash flows?

Solve 1 more question and get performance evaluation

Challenge Problems

Push your limits with challenges.

Question 1

Calculate the Profitability Index of a project that costs $150,000 and generates cash inflows worth $180,000 with a discount rate of 8%. If you have two investment options, one with a PI of 1.2 and another of 1.5, which would you choose?

💡 Hint: Compare the PI of both options directly.

Question 2

You have two investment projects, Project A requires $100,000 investment and yields $130,000 in PV cash inflows, while Project B needs $120,000 for $150,000 returns. Calculate the PIs and determine which project is more favorable based on these results.

💡 Hint: Calculate and simply compare the PIs.

Challenge and get performance evaluation