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  • MST531: Profitability Index (PI) and Revision

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    This document discusses the profitability index (PI) and provides an illustration of how to calculate PI for a project. The illustration is of a project with an initial outlay of Rs. 100,000 that generates cash inflows of Rs. 50,000, 40,000, 30,000 and 20,000 over the last four years. Using a discount rate of 10%, the present value of the cash inflows is calculated to be Rs. 114,680. The PI is then the present value of cash inflows divided by the initial investment, which for this project would be 1.1468.

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    This document discusses the profitability index (PI) and provides an illustration of how to calculate PI for a project. The illustration is of a project with an initial outlay of Rs. 100,000 that generates cash inflows of Rs. 50,000, 40,000, 30,000 and 20,000 over the last four years. Using a discount rate of 10%, the present value of the cash inflows is calculated to be Rs. 114,680. The PI is then the present value of cash inflows divided by the initial investment, which for this project would be 1.1468.

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    3 views6 pages

    MST531: Profitability Index (PI) and Revision

    Uploaded by

    perfectrader717
    This document discusses the profitability index (PI) and provides an illustration of how to calculate PI for a project. The illustration is of a project with an initial outlay of Rs. 100,000 that generates cash inflows of Rs. 50,000, 40,000, 30,000 and 20,000 over the last four years. Using a discount rate of 10%, the present value of the cash inflows is calculated to be Rs. 114,680. The PI is then the present value of cash inflows divided by the initial investment, which for this project would be 1.1468.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    MST531: Profitability Index (PI) and Revision

    Lecture 16
    Profitability Index
    Profitability Index: Illustration

    The initial outlay of the project is


    Rs. 1,00,000 and it generates cash
    inflows of Rs. 50,000, Rs. 40,000,
    Rs. 30,000 and Rs. 20,000 in the
    last four years of its lifespan. You
    are required to calculate PI of the
    project assuming 10% rate of
    discount.
    Profitability Index: Illustration

    Year Cash inflow (Rs.) Discount factor Present value


    (10%) (Rs.)
    1 50,000 0.909 45,450
    2 40,000 0.826 33,040
    3 30,000 0.751 22,530
    4 20,000 0.683 13,660
    1,14,680
    Profitability Index
    Thank you

    Prof. Narinder Verma


    School of Business Management and Liberal Arts
    Shoolini University
    Village Bajhol, Solan (H.P)

    +91 9816080528
    narinderverma@shooliniuniversity.com

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