Exponential utility - Revision history

en>Bequw: Make the formula nice (see talk page message)

2014-11-30T00:05:27Z

Make the formula nice (see talk page message)

← Older revision		Revision as of 02:05, 30 November 2014
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	~~{{Refimprove\|date=February 2007}}~~		The author's title is Christy. For years she's been living in Kentucky but her spouse desires them to move. To play lacross is some thing I truly enjoy doing. Office supervising is what she does for a residing.<br><br>my website - [http://Formalarmour.com/index.php?do=/profile-26947/info/ psychics online]
	~~{{Corporate finance}}~~
	'~~''Profitability index''' (PI), also known as '''profit investment ratio''' (PIR) and '''value investment ratio''' (VIR),~~ is ~~the ratio of payoff to investment of a proposed project~~. ~~It is a useful tool for ranking projects because it allows you~~ to ~~quantify the amount of value created per unit of investment~~.

	~~The ratio~~ is ~~calculated as follows:~~

	*<math>\text{Profitability index} = \frac{\text{PV of future cash flows}}{\text{Initial investment}}</math>

	~~Assuming that the [[cash flow]] calculated does not include the investment made in the project, a profitability index of 1 indicates breakeven~~. ~~Any value lower than one would indicate that the project's [[present value\|PV]]~~ is ~~less than the initial investment. As the value of the profitability index increases, so~~ does ~~the financial attractiveness of the proposed project.~~

	~~Rules~~ for ~~selection or rejection of~~ a ~~project:~~

	*If PI > ~~1 then accept the project~~
	*If PI < ~~1 then reject the project~~

	~~For example, given:~~

	~~************************************~~

	*Investment = $40,000
	*Life of the Machine = 5 Years

	~~[[cash flow\|CFAT]] Year CFAT~~

	~~1 18000~~
	~~2 12000~~
	~~3 10000~~
	~~4 9000~~
	~~5 6000~~

	~~Calculate~~ [~~[Net present value]] at 10% and PI~~:

	~~Year CFAT PV@10% PV~~

	~~1 18000 0~~.~~909 16362~~
	~~2 12000 0~~.~~827 9924~~
	~~3 10000 0.752 7520~~
	~~4 9000 0.683 6147~~
	~~5 6000 0.621 3726~~
	~~Total present value 43679~~
	(-~~) Investment 40000~~
	~~NPV 3679~~

	~~PI = 43679~~/~~40000 = 1.091 > 1 ⇒ Accept the project~~

	~~==References==~~
	~~<references~~ />

	~~==External links==~~

	~~Use explained in the business book: Pursuing the Competitive Edge, Hayes, Pisano, Upton and Wheelwright. Wiley, 2005. pg. 264~~

	~~[[Category:Financial terminology~~]]

	~~{{economics-stub}}~~

en>Duoduoduo: Undid revision 548306364 by 129.67.12.180 (talk)

2013-04-02T14:28:20Z

Undid revision 548306364 by 129.67.12.180 (talk)

← Older revision		Revision as of 16:28, 2 April 2013
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	~~Wilber Berryhill~~ is ~~what his wife loves~~ to ~~call him and he totally enjoys this title~~. ~~To perform lacross~~ is the ~~factor I love most~~ of ~~all~~. ~~My working day job~~ is a ~~journey agent~~. ~~My spouse and I reside in Kentucky~~.~~<br~~><~~br>my website -~~ [~~http~~:~~//ustanford~~.~~com~~/~~index~~.~~php?do~~=/~~profile~~-~~38218/info/ email psychic readings]~~		{{Refimprove\|date=February 2007}}
			{{Corporate finance}}
			'''Profitability index''' (PI), also known as '''profit investment ratio''' (PIR) and '''value investment ratio''' (VIR), is the ratio of payoff to investment of a proposed project. It is a useful tool for ranking projects because it allows you to quantify the amount of value created per unit of investment.

			The ratio is calculated as follows:

			*<math>\text{Profitability index} = \frac{\text{PV of future cash flows}}{\text{Initial investment}}</math>

			Assuming that the [[cash flow]] calculated does not include the investment made in the project, a profitability index of 1 indicates breakeven. Any value lower than one would indicate that the project's [[present value\|PV]] is less than the initial investment. As the value of the profitability index increases, so does the financial attractiveness of the proposed project.

			Rules for selection or rejection of a project:

			*If PI > 1 then accept the project
			*If PI < 1 then reject the project

			For example, given:

			************************************

			*Investment = $40,000
			*Life of the Machine = 5 Years

			[[cash flow\|CFAT]] Year CFAT

			1 18000
			2 12000
			3 10000
			4 9000
			5 6000

			Calculate [[Net present value]] at 10% and PI:

			Year CFAT PV@10% PV

			1 18000 0.909 16362
			2 12000 0.827 9924
			3 10000 0.752 7520
			4 9000 0.683 6147
			5 6000 0.621 3726
			Total present value 43679
			(-) Investment 40000
			NPV 3679

			PI = 43679/40000 = 1.091 > 1 ⇒ Accept the project

			==References==
			<references />

			==External links==

			Use explained in the business book: Pursuing the Competitive Edge, Hayes, Pisano, Upton and Wheelwright. Wiley, 2005. pg. 264

			[[Category:Financial terminology]]

			{{economics-stub}}

en>Zfeinst: /* See also */ add link to entropic risk measure

2011-02-05T01:37:07Z

See also: add link to entropic risk measure

New page

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