Net present value and the profitability index are helpful tools that allow investors and companies make decisions about where to allocate their money for the best return.

Learn how to calculate the net present value (NPV) of your investment projects using Excel's XNPV function.

How to Calculate the Profitability Index To calculate the profitability index, you first need to determine the present value of the expected future cash flows from the investment.

We calculated that the net present value of all of the lemonade stand's cash flows was $34.20. However, to calculate the profitability index, we need the present value of the future cash flows only.