Profitability index

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February 10, 2021 at 12:00 am #609872
student999
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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
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Subject to anything else that might be written in the question, we do include the working capital.
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