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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
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: Purple Whale Foodstuffs Inc. is considering investing $3,000,000 in a project that is expected to generate the following net cash flows: Purple Whale Foodstuffs Inc. uses a WACC of 7% when evaluating proposed capital budgeting projects. Based on these cash flows project's PI (rounded to four decimal places): 0.4336 0.4553 0.4770 0.4986 Purple Whale Foodstuffs Inc.'s decision to accept or reject this project is independent of its decisions on other projects. Based on the project's firm should the project. should in the project because the project increase the firm's value. A project with a negative NPV will have a PI that is ; when it has a PI of 1.0, it will have an NPV
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