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The profitability index calculation takes the time value of money into account.
Profitability Index
A calculation that measures the relative profitability of an investment, determined by dividing the present value of future cash flows by the initial investment cost.
Time Value
The concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity.
Money
A medium of exchange that is widely accepted in transactions for goods and services and the repayment of debts.
- Understand the concept of the time value of money and its application in investment decision-making.
- Understand and apply the profitability index (PI) in investment evaluation.
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Learning Objectives
- Understand the concept of the time value of money and its application in investment decision-making.
- Understand and apply the profitability index (PI) in investment evaluation.
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