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Profitability index

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Profitability index

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by John Moffat.
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  • Author
    Posts
  • February 10, 2021 at 12:00 am #609872
    student999
    Participant
    • Topics: 6
    • Replies: 6
    • ☆

    Hi

    For example, a company invested 5m in machine and 1m in WC. NPV is 2m. How to then calculate Profitability index, do we include the WC investment or ?

    PI = NPV/Initial investment
    2m/5
    0.4

    OR

    PI = 2m/6m
    0.33

    February 10, 2021 at 9:42 am #609897
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54684
    • ☆☆☆☆☆

    Subject to anything else that might be written in the question, we do include the working capital.

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