ESumding une Casn now generateu uy investeu in invesument 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 net cost (NINV). A project's PI value can be interpreted to indicate a project's discounted return generated by each dollar of net investment required to generate those returns. Consider the case of Fuzzy Badger Transport Company: Fuzzy Badger Transport Company is considering investing $500,000 in a project that is expected to generate the following net cash flows: Fuzzy Badgeruses a WACE of 9% when evaluating proposed capital budgeting projects. Based on these Year Cash Flow cash flows, determine this project's PI (rounded to four decimal places): Year 1 $325,000 Year 2 $425,000 2.3133 Year 3 $500,000 2.1772 Year 4 $450,000 2.7215 2.9937 Fuzzy Badger'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 net present value (NPV) of this project is criterion, Fuzzy Badger should On the basis of this evaluation in the project because the project increase the firm's value. When a project has a PI greater than 1.00, it will exhibit an NPV ; when it has PI of 1.00, it will 1.00 will exhibit negative NPVS have an NPV equal to $0, Projects with PIs