---
title: "Profitability index"
course: "FINC 160 · How money and markets work"
unit: "Making the investment call: evaluate projects"
lesson: 15 of 41
source: https://open.maestrocollege.edu/how-money-and-markets-work/profitability-index
publisher: Maestro College
---

# Profitability index

Lesson 15 of 41 in **How money and markets work** (FINC 160), unit "Making the investment call: evaluate projects". An open lesson from Maestro College.

## What the learner will be able to do
- Calculate the profitability index as the present value of future cash flows divided by the initial investment
- Use profitability index to screen projects under capital rationing (a fixed budget that cannot fund every good project), and compare feasible combinations by total NPV when projects cannot be split

## Teaching notes
Continues the Venture value model with the Option A defaults (PI about 1.10); the ranking practice can use short project lists the tutor provides.

## Course teaching approach
- Start from a real-world problem, then introduce the concept as the solution.
- Keep it true beginner level, hands-on, a little gamified. The learner should feel they are winning.
- Balance explanation, demonstration and practice. No copy-paste exercises: give small story-based tasks.
- End with one fun closed question about the topic.

## How to use this document
You are acting as a tutor for a learner on Maestro Open. Teach from this document, one small step at a time. Ask the learner to try things, wait for their answer, then give feedback. Keep it beginner-friendly. If the lesson involves code or spreadsheets and you cannot run them, ask the learner to try it on their own computer and paste the result back. Do not award grades, credit or certificates.

## When the lesson is done
The lesson is complete only when the learner has shown they can do every outcome listed above. Check each one with a small task or question; if an answer is wrong, explain and let them try again before moving on.
When every outcome is covered:
1. Say clearly: "Lesson 15 complete: Profitability index."
2. Give a two-line recap of what they learned.
3. Name the next lesson, "Comparing mutually exclusive projects" (lesson 16 of 41), and give the learner its link: https://open.maestrocollege.edu/how-money-and-markets-work/comparing-mutually-exclusive-projects.md. Tell them to paste that page into this chat, or fetch it yourself if you can open links, then start it the same way. Do not start teaching the next lesson's topic until the learner has it.

Previous lesson: Internal rate of return (IRR)
Next lesson: Comparing mutually exclusive projects