where pv is the present value cf is the cash flow in a given year r is the discount rate and n is the number of years 
plugging in the values for this example we get the profitability index for the factory expansion project is then calculated as to calculate the profitability index for the new factory project the present value of the future cash flows would be calculated using the same formula the profitability index for the new factory project is then calculated as in this example the factory expansion project has a higher profitability index meaning it is a more attractive investment the company might decide to pursue this project instead of the new factory project because it is expected to generate more value per unit of investment however since both pis are less than 1 0 the company may end up forgoing either project in favor of a better opportunity elsewhere advantages and disadvantages of the profitability indexaccounts for the time value of moneyallows comparisons across different projects