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hurdle rate. May not include
in the project See
in the project. See
• Accounts for TVM. Chapter 14.
• Considers all
cash flows. 57 Certified Financial Controller CFC Net Present Value Profile
Net Present Value $000s
15 Sum of CF’s Plot NPV for each
discount rate. 10
[email protected]% 0
0 58 3 6
Discount Rate (%)
Certified Financial Controller CFC 29 15 Profitability Index (PI)
PI is the ratio of the present value of
is the ratio of the present value of
a project’s future net cash flows to
the project’s initial cash outflow.
Method #1: CF1
(1+k)1 PI = + CF2
(1+k)n ICO << OR >>
Method #2: PI = 1 + [ NPV / ICO ] 59 Certified Financial Controller CFC PI Acceptance Criterion
PI = $38,572 / $40,000
= .9643 (Method #1, previous slide) Should this project be accepted?
No! The PI is less than 1.00. This
means that the project is not profitable.
[Reject as PI < 1.00 ]
60 Certified Financial Controller CFC 30 PI Strengths
Strengths: Weaknesses: • Same as NPV • Same as NPV • Allows
• Provides only
• Potential Ranking
61 Certified Financial Controller CFC Evaluation Summary
Basket Wonders Independent Project
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This note was uploaded on 05/28/2013 for the course FINANCE economy taught by Professor Nill during the Fall '12 term at Bronx School Of Law And Finance.
- Fall '12