Estimating the cash flow generated by si invested in investment The profitability 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 not cost (NIV). A project's PI value can be interpreted to indicate a project's discounted return generated by each dollar of niet investment required to generate those returns Consider the case of Blue Moore Home Builders: Bleone Home Builders is considering investing $400,000 in a project that is expected to generate the following net canons Year Cash Flow $450,000 SOO Blue Moose unes a WACC of 10% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's P1 (rounded to four decimal places). 3.5543 2.3674 3.927 3.7535 Blue Moore's decision to accept as reject this project is independent of its decisions on other projects. Based on the project's PI, the firm should the project er comparison, the representator (REPV) of this project is On the basis of this evaluation criterion, Blue Moose should in the ruled because the project increase the firm's value when it has a prof 1.00. It will have an NPV equal to 10 What at the 1.00 ilitan ND negative