The formula to calculate the Profitability Index is:
\[ \text{Profitability Index} = \frac{\text{Net Present Value (NPV)} + \text{Initial Investment}}{\text{Initial Investment}} \]
Where:
The Profitability Index (PI) is the ratio of payoff to the investment of a proposed project.
Let's assume the following values:
Using the formula:
\[ \text{Profitability Index} = \frac{700 + 2000}{2000} \]
Evaluating:
\[ \text{Profitability Index} = \frac{2700}{2000} \]
\[ \text{Profitability Index} = 1.35 \]
The Profitability Index is 1.35.
| Net Present Value (NPV) | Initial Investment | Profitability Index |
|---|---|---|
| 500 | 1500 | 1.333333333333 |
| 500 | 1750 | 1.285714285714 |
| 500 | 2000 | 1.250000000000 |
| 500 | 2250 | 1.222222222222 |
| 500 | 2500 | 1.200000000000 |
| 600 | 1500 | 1.400000000000 |
| 600 | 1750 | 1.342857142857 |
| 600 | 2000 | 1.300000000000 |
| 600 | 2250 | 1.266666666667 |
| 600 | 2500 | 1.240000000000 |
| 700 | 1500 | 1.466666666667 |
| 700 | 1750 | 1.400000000000 |
| 700 | 2000 | 1.350000000000 |
| 700 | 2250 | 1.311111111111 |
| 700 | 2500 | 1.280000000000 |
| 800 | 1500 | 1.533333333333 |
| 800 | 1750 | 1.457142857143 |
| 800 | 2000 | 1.400000000000 |
| 800 | 2250 | 1.355555555556 |
| 800 | 2500 | 1.320000000000 |
| 900 | 1500 | 1.600000000000 |
| 900 | 1750 | 1.514285714286 |
| 900 | 2000 | 1.450000000000 |
| 900 | 2250 | 1.400000000000 |
| 900 | 2500 | 1.360000000000 |
| 1000 | 1500 | 1.666666666667 |
| 1000 | 1750 | 1.571428571429 |
| 1000 | 2000 | 1.500000000000 |
| 1000 | 2250 | 1.444444444444 |
| 1000 | 2500 | 1.400000000000 |