How to solve – profitability index

The project’s PI (profitability index) is 1.55. The project’s PI (profitability index) is 1.55. It measures the return on investment. This can be calculated by subtracting the expected future cash flow present value, including terminal value, from the investment cost. To calculate our PV, you will need to add up all the discounted cash flows for years 1 through 11, and divide that number by the original cost.

An annuity calculator can be used to calculate the expected cash flow present value at $118,587 (15,000 x 7.486). Dividing $118,587 by $50,975 gives us our PI of 1.55 – implying that for every dollar invested in this project there will be a return on investment of $1.55 over its lifetime if all other assumptions remain unchanged.