Estimating the cash flow generated by $1 invested in investment. The profitabiirty index (PI) is a capital budgeting tool that provides another way to compare a project's benefits and costs. It is computed as a ratio of the discounted value of the net cash flows expected to be generated by a project over its life (the project's expected benefits) to its net cost (Nitv). A project's PI value can be interpreted to indicate a project's discounted return generated by each dollar of net investrient required to generate those returns. Consider the case of Purple Whale Foodstuffs inc:: Purple Whale Foodstuffs Inc. is considering investing $500,000 in a project that is axpected to generate the following net cash flows? Purple Whate uses a WACC of 7% when evaluating proposed capital budoeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places). 2.2122 3.0418 2.7653 2.6270 Purple Whale's decision to accept or reject this project is independent of tis decisions on other projects. Based on the project's Pr, the firm should the project. By comparison, the net present value (Npy) of this project is On the basis of this evaluation criterion, Purple Whate should in the project because the project increase the firm's value. When a project has a Pl greater than 1:00 it will exhibit an NPW : when it has a Pl of 1,00 , it will have an NPV equal to $0. Projects with PIS 1.00 will exhibit negative NpWs