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 Happy Dog Soap Company: Happy Dog Soap Company is considering investing $450,000 in a project that is expected to generate the following net cash flows: Happy Doguses a WACC of 10% when evaluating proposed capital budgeting projects. Based on these Year Cash Flow cash flows, determine this project's PI (rounded to four decimal places): 2.8840 2.4514 2.7398 2.5956 Happy Dog'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 ____. On the basis of this evaluation criterion, Happy Dog should _____ 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 a PI of 1.00, it will have an NPV equal to $0. Projects with PIs _____ 1.00 will exhibit negative NPVs