Profitability Index Calculation

The profitability index (PI) of a series of cash flows is found by calculating the present value of all the cash flows from a project (PV) and dividing the value by the initial investment (I). The profitability index is sometimes referred to as the value investment ratio.

Last modified July 6th, 2017 by Michael Brown
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Present Value of a Lump Sum

The concept of the present value of lump sum is the starting point for many time value of money calculations including the present value of an annuity, and net present value calculations.

Last modified November 6th, 2016 by Michael Brown
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Present Value of a Growing Perpetuity Formula

The present value of a growing perpetuity formula is used to calculate the present value of a series of periodic payments which increase at a constant rate each period. The payments made at the end of each period, continue forever, and have a discount rate i% is applied.

Last modified November 6th, 2016 by Michael Brown
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Present Value of Annuity Formula

The present value of an annuity formula is used to calculate the present value of a series of periodic payments. The payments are for the same amount, made at the end of each period, and a discount rate i% is applied.

Last modified November 6th, 2016 by Michael Brown
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Present Value of a Growing Annuity Due Formula

The present value of a growing annuity due formula is used to calculate the present value of a series of periodic payments which increase at a constant rate each period. The payments made at the start of each period, and a discount rate i% is applied.

Last modified November 6th, 2016 by Michael Brown
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Present Value Annuity Due Tables

The present value annuity due tables can be used to carry out annuity due calculations without the use of a financial calculator.

The tables give the value of 1 received at the beginning of each period for n periods, at a discount rate of i%.

Last modified November 6th, 2016 by Michael Brown
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Present Value Annuity Tables

The present value annuity tables can be used to carry out annuity calculations without the use of a financial calculator.

The tables give the value of 1 received at the end of each period for n periods, at a discount rate of i%.

Last modified May 22nd, 2018 by Michael Brown
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Lump Sum Present and Future Value Formula

The time value of money concept in financial management is used to compare lump sum cash flows which are received or paid at different times.

The lump sum present and future value formulas can be used to calculate the effect of time and compounding interest rates on the value of the lump sums. They are best looked at by way of example.

Last modified April 11th, 2019 by Michael Brown
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Net Present Value

The net present value (NPV) of a series of cash flows is found by calculating the present value of each cash flow at the appropriate discount rate and then adding them together.

The net present value is used to compare projects and to evaluate whether or not a project is worthwhile. It assumes that a project comprises a series of cash flows in or out of the business over a number of years.

Last modified April 6th, 2019 by Michael Brown
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