Estimating the cash flow generated by $1 invested in investment 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: Sonaiya Development Group. is considering investing $500,000 in a project that is expected to generate the following net cash flows: Sonaiya Development Group. uses a WACC of 9% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project?s PI: Sonaiya Development Group.?s decision to accept or reject this project is independent of its decisions on other projects. Based on the project?s PI, the firm should_____ the project. By comparison, the NPV of this project is ______________. On the basis of this evaluation criterion, Sonaiya Development Group. Should_____ in the project because the project______ increase the firm?s value. When a project has a PI greater than 1.0, it will exhibit an NPV _________________ ; when it has a PI of 1.0, it will have an NPV equal to $0. Projects with PIs_____ 1.0 will exhibit negative NPVs