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Estimating the cash flow generated by $1 invested in a project The profitability index (PI) is a capital budgeting tool that is defined as
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 project's cash inflows divided by the absolute value of its initial cash outflow. Consider this case: Fuzzy Badger Transport Company is considering investing $2,750,000 in a project that is expected to generate the following net cash flows: Year Year 1 Cash Flow $300,000 Year 2 $450,000 Year 3 $450,000 Year 41 $450,000 Fuzzy Badger Transport Company uses a WACC of 10% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places): 0.4456 0.5629 0.4691 0.4222
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