ECONOMICS

Detailed explanation-1: -The profitability index (PI) is a measure of a project’s or investment’s attractiveness. The PI is calculated by dividing the present value of future expected cash flows by the initial investment amount in the project.

Detailed explanation-2: -Profitability Index = (Net Present value + Initial investment) / Initial investment. Profitability Index = 1 + (Net Present value / Initial investment)

Detailed explanation-3: -False. The profitability index (PI) is calculated by dividing the present value of an investment’s future cash flows by its initial cost.

Detailed explanation-4: -The profitability index can be calculated by dividing income by total assets. This gives the rate of return on capital invested in the company. It can also help determine if an investment is worth the cost of capital. This means that if a business has an ROI of 10%, the company’s profitability index is 0.1.

Detailed explanation-5: -Profitability Index method is also known as the Benefit-Cost Ratio.