The profitability index (PI)is a capital budgeting tool that provides another way to compare a project 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 ind cate a project's discounted return generated by each dollar of net investment required to generate those returns s benefits and Consider the case of Happy Dog Soap Company: Happy Dog Soap Company is considering investing $500,000 in a projet that is expected to generate the followi g net cash flows: Happy Doguses a WACC of 10% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four Year Cash Flow Year 1 $300,000 Year 2 $400,000 Year 3 $425,000 Year 4 $425,000 decimal places): O 2.6684 O 2.1832 O 2.3045 O 2.4258 Happy Dog'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, Happy On the basis of this evaluation Dog 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 Pls : when it has a PI of 1.00, it i 1.00 will exhbit negative NPVs