[baileysreb]

My question is find the NPV and PI of an annuity that pays $500 per year for 8 years and costs $2,500. Assume a discount rate of 6%. I'm lost! How do I even calculate this?

[morgaine300]

Well, I'm not sure what the PI stands for... it may be I just don't recognize that abbreviation. But no one else has answered this yet, and I do know how to do the net present value.

You need to get the present value of the $500 payments first, using the 6% rate and 8 years. How to get that depends on the method being used, of which there are four. (Algebraic equations, charts, Excel & a financial calculator.) Bit difficult to lead through that part without knowing how you're doing it. But regardless, you need the present value, and because of the payments, it's an annuity. (Yes, I know it says it's an annuity, but there's annuities and then there's annuities. What I'm calling an annuity simply means a series of payments, versus a lump sum. And you need to make sure you're solving for an annuity and not a lump sum.)

A net present value is the different between the present value of what you're getting out of something into the future, and what you put into it.

And the PI I don't know because I don't know what it is. I for interest?

[baileysreb]

PI stands for Profitability index which is a method for evaluating capital budgeting projects

[morgaine300]

Ah. That would be beyond my finance knowledge.