Episode 131: How to Calculate the Profitability Index

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The Profitability Index is a capital budgeting tool used to evaluate the potential return of a project. Like all capital budgeting tools, the profitability index can be very helpful when comparing the potential returns of various capital budgeting proposals. Similar to the net present value (NPV), the profitability index requires a knowledge of the present value of future cash flows as well as the initial investment required to start the project.

In this video we'll explore how to calculate the profitability index and compare the profitability index to the net present value.