9. Profitability index Estimating the cash flow generated by $1 invested in a project The profitability index (PI) is a capital budgeting tool that is defined as the present value of a projects cash inflows divided by the absolute value of its initial cash outflow. Consider this case: Free Spirit Industries Inc. 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 $425,000 Year 3 $500,000 Year 4 $475,000 Free Spirit Industries Inc. uses a WACC of 7% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this projects PI (rounded to four decimal places):

0.7031 0.7670 0.6072 0.6392