RatedrillProfitability index
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
A project costs $25,000 today and returns $16,500, $14,500 and $13,500 at the end of years 1 to 3. At 8.75%, what is its profitability index, to 2 decimals?
What this problem teaches
The formula: PI = PV of future cash flows / initial cost. With CF0 = 0, the NPV key gives the PV of the inflows.
A hint if you get stuck
PI = present value of the future cash flows / initial cost.
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