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 Blue Moose Home Builders: Blue Moose Home Builders is considering investing $450,000 in a project that is expected to generate the following net cash flows: Blue Mooseuses a WACC of 9% when evaluating proposed capital budgeting projects. Based on these Year Cash Flow cash flows, determine this project's PI (rounded to four Year 1 $325,000 decimal places): $400,000 Year 2 O 2.3761 O 2.5246 Year 3 $450,000 Year 4 $500,000 O 2.6731 O 2.9701 Blue Moose's decision to accept or reject this project is independent of its decisions on other projects. Based on the the project project's PI, the firm should By comparison, the net present value (NPV) of this project is On the basis of this evaluation criterion,Blue Moose should in the project because the project increase the firm's value. ;when it has a PI of 1.00, it will When a project has a PI greater than 1.00, it will exhibit an NPV 1.00 will exhibit negative NPVS. have an NPV equal to $0. Projects with PIs