The ''//Profitabilty Index//'' looks at the ratio of the NPV compared to the initial investment required:

$\Large {Profitability\ Index}$ = $\LARGE \frac{NPV}{{Initial\ Investment}}$

Compare the following projects:
|Project|$C_0$|$C_1$|$C_2$|NPV at 10%|h
|A|-10|+30|+5|21|
|B|-5|+5|+20|16|
|C|-5|+5|+15|12|

The profitability index would be:
|Project|Investment|NPV|Profitability Index|h
|A|10|21|2.1|
|B|5|16|3.2|
|C|5|12|2.4|
bag
finance_public
created
Tue, 01 Feb 2011 22:09:37 GMT
creator
dirkjan
modified
Tue, 01 Feb 2011 22:09:37 GMT
modifier
dirkjan
tags
M12
Principles of Corporate Finance
Term
creator
dirkjan