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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 at its initial cash outflow. Consider this case: Fuzzy Badger Transport Company is considering investing $3,000,000 in a project that is expected to generate the following net cash flows: Fuzzy Badger Transport Company uses a WACC of 8% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places): 0.4754 0.4528 0.4302 0.5207 Fuzzy Badger Transport Company'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, Fuzzy Badger Transport Company 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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