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 rati 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 (NINY 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 thos 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 $350,000 Year 1 Year 2 $475,000 $400,000 Year 3 Year 4 $475,000 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): 0 2.6083 O 2.1115 O 2.7325 2.4841 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. Accept/Reject 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 Will/ will not When a project has a PI greater than 1.00, it will exhibit an NPV Less than $0 when it has a PI of 1.00, it will have an NPV equal to $0. Projects with Pis Greater than 1.00 will exhibit negative NPVs. equal to $0 Equal to Greater than $0 Less than