Question
10.2.7 Fuzzy Badger Transport Company is considering investing $2,225,000 in a project that is expected to generate the following net cash flows: Year Cash Flow
10.2.7
Fuzzy Badger Transport Company is considering investing $2,225,000 in a project that is expected to generate the following net cash flows:
| Year | Cash Flow |
|---|---|
| Year 1 | $300,000 |
| Year 2 | $450,000 |
| Year 3 | $475,000 |
| Year 4 | $500,000 |
Fuzzy Badger Transport Company uses a WACC of 10% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this projects PI (rounded to four decimal places):
0.5432
0.6640
0.7243
0.6036
Fuzzy Badger Transport Companys decision to accept or reject this project is independent of its decisions on other projects. Based on the projects PI, the firm should 
the project.
By comparison, the NPV of this project is 
On the basis of this evaluation criterion, Fuzzy Badger Transport Company should 
in the project because the project 
increase the firms value.
A project with a negative NPV will have a PI that is 
; when it has a PI of 1.0, it will have an NPV 
.
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Financial and Managerial Accounting
Authors: Horngren, Harrison, Oliver
3rd Edition
978-0132497992, 132913771, 132497972, 132497999, 9780132913775, 978-0132497978
