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The Profitability Index Is the Ratio of the Present Value

question 114

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The profitability index is the ratio of the present value of the future free cash flows to the initial investment.


Definitions:

Maturity

The date on which the principal of a debt is due. Also the time from the present until that date.

Annual Interest Rate

The percentage of interest that will be charged or earned on an investment or loan on an annual basis.

Prompt Payment Discount

A discount offered to customers for paying their invoices before a specified due date, used as an incentive for early payment.

Annual Rate

A periodic interest rate calculated over a year, often representing the cost of borrowing money or the earnings from an investment.

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