25.5.B.3 - Profitability Index (PI)
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Practice Questions
Test your understanding with targeted questions
What is the definition of Profitability Index?
💡 Hint: Remember, it reflects the efficiency of an investment.
What indicates a potentially profitable project using PI?
💡 Hint: Think about what 'greater than' signifies in investing.
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Interactive Quizzes
Quick quizzes to reinforce your learning
What does a PI greater than 1 indicate?
💡 Hint: Think about profitability.
The calculation of the Profitability Index requires which estimation?
💡 Hint: What do we need to factor in for future cash flows?
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Challenge Problems
Push your limits with advanced challenges
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.
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.
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