The formula to calculate the Profitability Index (PI) is:
\[ \text{PI} = \frac{\text{PV of future cash flows}}{\text{Initial Investment}} \]
Let's calculate the PI for a farmer's investment project with the following information:
PI = \(\frac{\$800,000}{\$500,000} = 1.6\)
This means that for every dollar invested, the project returns $1.60 in present value terms.