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 is considering investing $2,500,000 in a project that is expected to generate the following net cash flows: Purple Whale Foodstuffs uses a WACC of 10% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places): Year Cash Flow Year 1 $375,000 Year 2 $500,000 Year 3 $425,000 Year 4 $475,000 O 0.5591 O 0.6430 O 0.5032 O 0.5311 Purple Whale Foodstuffs'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 NPV of this project is . On the basis of this evaluation criterion, Purple Whale Foodstuffs should in the project because the project increase the firm's value. equal to 1.0 when it has a PI of 1.0, it will have an NPV A project with a negative NPV will have a PI that is equal to $0 equal to $0 greater than $0 less than $0