Assume expected total present value of project Alpha is Rs 25 million with its initial investment of Rs 20 million. What is profitability index? Is the project Alpha profitable?

The Profitability Index (PI) is calculated as the ratio of the Present Value of Future Cash Flows (PV) to the Initial Investment (I).

Given:

• Expected total present value (PV) = Rs 25 million
• Initial investment (I) = Rs 20 million

Calculation: $$\text{Profitability Index (PI)}=\frac{\text{PV}}{\text{I}}=\frac{25}{20}=1.25$$

Interpretation: Since the PI = 1.25 > 1, the project Alpha is profitable as it generates Rs 1.25 in present value for every rupee invested. This indicates a positive net present value (NPV) and a favorable return on investment.