Question

If the NPV of a project is $7,581 and its after-tax initial investment is $13,300, what is its PI?

Answer 1

The Profitability Index (PI) of a project with an NPV of $7,581 and an after-tax initial investment of $13,300 is 1.57.

Step-by-step explanation:

If the Net Present Value (NPV) of a project is $7,581 and after-tax initial investment is $13,300, the Profitability Index (PI) can be found by using the formula PI = (NPV + Initial Investment) / Initial Investment. Therefore, to calculate the PI, we should add the NPV to the after-tax initial investment and then divide by the initial investment:

PI = ($7,581 + $13,300) / $13,300

Calculating this gives us:

PI = $20,881 / $13,300

PI = 1.57

So, the Profitability Index (PI) for the project is 1.57. A PI greater than 1 indicates that the project is a good investment, as it is expected to generate more value than the cost of the initial investment.