Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Project requires an initial investment of $ 1792335 and the appropriate discount rate for this project is
0.12. Estimated Profitability index:
• $ 145654 in Year 1
• $ 238344 in Year 2
• $ 304626 in Year 3
Answer:
Expert Solution
Step 1
The profitability index (PI), also known as the profit investment ratio (PIR) or value investment ratio (VIR), is the ratio of a proposed project's payout to its investment.
Because it allows you to quantify the amount of value generated per unit of investment, it's a valuable tool for rating initiatives.
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