# What is the profitability index formula?

## What is the profitability index formula?

The profitability index is calculated by dividing the present value of future cash flows that will be generated by the project by the initial cost of the project. A profitability index of 1 indicates that the project will break even. For example, if a project costs \$1,000 and will return \$1,200, it’s a “go.”

## How do we calculate payback period?

To calculate the payback period you can use the mathematical formula: Payback Period = Initial investment / Cash flow per year For example, you have invested Rs 1,00,000 with an annual payback of Rs 20,000. Payback Period = 1,00,000/20,000 = 5 years.

How do you calculate modified IRR?

Take the present value (PV) of the project cash flows from the recovery phase (note not the NPV), divide by the outlay and take the ‘ n th’ root of the result. Multiply the result by one plus the cost of capital (1.1 in this case), deduct one and you have the answer.

How do you calculate net present value?

What is the formula for net present value?

1. NPV = Cash flow / (1 + i)t – initial investment.
2. NPV = Today’s value of the expected cash flows − Today’s value of invested cash.
3. ROI = (Total benefits – total costs) / total costs.

### What is profitability index in capital budgeting?

The profitability index (PI) is a measure of a project’s or investment’s attractiveness. The PI is calculated by dividing the present value of future expected cash flows by the initial investment amount in the project.

### How do I calculate payback period in Excel?

Payback period = Initial Investment or Original Cost of the Asset / Cash Inflows.

1. Payback period = Initial Investment or Original Cost of the Asset / Cash Inflows.
2. Payback Period = 1 million /2.5 lakh.
3. Payback Period = 4 years.

What is MIRR formula?

To calculate the MIRR for each project Helen uses the formula: MIRR = (Future value of positive cash flows / present value of negative cash flows) (1/n) – 1.