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 Purple Whale Foodstuffs: Purple Whale Foodstuffs is considering investing $550,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $425,000 Year 3 $425,000 Year 4 $425,000 Purple Whaleuses a WACC of 9% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's Pl (rounded to four decimal places): O 2.3783 O 2.6161 O 2.1405 2.2594 Purple Whale'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. reject accept By comparison, the net present value (NPV) of this project is On the basis of this evaluation criterion, Purple Whale 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 equal to $0 ; when it has a PI of 1.00, it will have an NPV equal to so. Projects with PIS 1.00 will exhibit negative NPVS. 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 Purple Whale Foodstuffs: Purple Whale Foodstuffs is considering investing $550,000 in a project that is expected to generate the following net cash flows: Purple Whaleuses a WACC of 9% 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 $350,000 Year 2 $425,000 Year 3 $425,000 Year 4 $425,000 O 2.3783 O 2.6161 O 2.1405 O 2.2594 Purple Whale'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 criterion, Purple Whale should in the project bd . On the basis of this evaluation ct increase the firm's value. D $833,881 $606,459 -$208,074 $909,689 $720,170 $758,074 when a project has a PI greater than 1.00, it will exhibit an N have an NPV equal to $0. Projects with PIS $0 when it has a PI of 1.00, it will negative NPVs. 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 Purple Whale Foodstuffs: Purple Whale Foodstuffs is considering investing $550,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $425,000 Year 3 $425,000 Year 4 $425,000 Purple Whaleuses a WACC of 9% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places): 2.3783 2.6161 2.1405 2.2594 Purple Whale'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, Purple Whale should in the project because the project increase the firm's value. invest not invest When a project has a Pl greater than 1.00, it will exhibit an NPV equal to $0 when it has a Pl of 1.00, it will have an NPV equal to $0. Projects with Pls 1.00 will exhibit negative NPVS. 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 Purple Whale Foodstuffs: Purple Whale Foodstuffs is considering investing $550,000 in a project that is expected to generate the following net cash flows: Purple Whaleuses a WACC of 9% 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 $350,000 Year 2 $425,000 Year 3 $425,000 Year 4 $425,000 0 2.3783 2.6161 O 2.1405 O 2.2594 Purple Whale'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, Purple Whale should in the project because the project increase the firm's value. will will not When a project has a Pl greater than 1.00, it will exhibit an NPV equal to $0 when it has a pl of 1.00, it will have an NPV equal to $0. Projects with PIS 1.00 will exhibit negative NPVS. and costs. It is computea as a rano or the discounted value or the net cash rows 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 Purple Whale Foodstuffs: Purple Whale Foodstuffs is considering investing $550,000 in a project that is expected to generate the following net cash flows: Purple Whaleuses a WACC of 9% 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 $350,000 Year 2 $425,000 Year 3 $425,000 Year 4 $425,000 O 2.3783 2.6161 2.1405 2.2594 O O Purple Whale'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, Purple Whale 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 have an NPV equal to $0. Projects with PIS equal to 1.0 equal to $0 N: when it has a Pl of 1.00, it will greater than $0 e NPVS. equal to $0 less than $o 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 Purple Whale Foodstuffs: Purple Whale Foodstuffs is considering investing $550,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year 1 $350,000 Year 2 $425,000 Year 3 $425,000 Year 4 $425,000 Purple Whaleuses a WACC of 9% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places): O 2.3783 2.6161 O 2.1405 O 2.2594 Purple Whale'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, Purple Whale 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 equal to $0 when it has a Pl of 1.00, it will have an NPV equal to $o. Projects with PIS equal to 1.00 will exhibit negative NPVS. greater than equal to less than