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Present Value of Future Cash Flows : $

Initial Investment : $



Profitability Index Formula

Profitability Index = (PV of future cash flows) / Initial investment


= (NPV + Initial investment) / Initial Investment

Profitability Index Example

Arch company invested $30,000 for a project and expects the NPV of that project to be $9,000.

Profitability Index = (30,000 + 9,000) / 30,000 = 2.3 

This means a company should perform the investment project because profitability index is greater than 1.