In this video, we dive into how to calculate the profitability index (PI), a crucial concept in capital budgeting for finance students. Using a real-world example, we'll walk through the process of determining the PI for a project with specific cash flows and a given discount rate. By explaining the formula—present value of cash inflows divided by the present value of cash outflows—we break down how to discount cash flows and use a financial calculator effectively. This video includes two exam-like problems to help you master the profitability index, providing you with all the tools to solve similar questions confidently.