x Estimating the cash flow generated by $1 Invested in a project 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 of its Initial cash outflow. Consider this case: Purple Whale Foodstuffs Inc. is considering investing $2,500,000 in a project that is expected to generate the following net cash flows: Cash Flow Year Year 1 Year 2 $375,000 $425,000 $425,000 $425,000 Year 3 Year 4 Purple Whale Foodstuffs Inc. uses 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): 0.5856 0.5324 0.5590 0.5058 d Purple Whale Foodstuffs Inc.'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 in the project because the project On the basis of this evaluation criterion, Purple Whale Foodstuffs Inc. should 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 dh Purple Whale Foodstuffs Inc.'s decision to accept or reject this project is independent of its decisi firm should the project. By comparis accept PV of this project is reject he project because the project On the basis of this evaluation crite 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 O 0.5058 $1,168,991 Purple Whale Foodstuffs Inc.'s decision to -$1,168,991 t this project is independent of its decisions on oth Firm should the project. -$1,402,789 By comparison, the NPV of this project is in the project because the project On the basis of this evaluation criterion, Purple 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 ha Purple Whale Foodstuffs Inc.'s decision to accept or reject this proje not invest w the project. ? invest On th JE In, the NPV of this project is in the project because the project ind A project with a negative NPV will have a PI that is 0.5590 0.5058 irple Whale Foodstuffs Inc.'s decision to accept or reject this project is independent of its decisions on other projects. Base m should the project. will will not comparison, the NPV of this project is in the project because the project On the basis of this evaluation criterion, Purple Whale Foodstu increase the firm's value. project with a negative NPV will have a PI that is ; when it has a PI of 1.0, it will have an NPV Inc.'s decision to accept or reject this project is independent of its decisions on other projects. Based on the project. equal to 1.0 V of this project is e project because the project less than 1.0 asis of this evaluation criterion, Purple Whale Foodstuffs Inc ase the firm's value. greater than 1.0 Live NPV will have a PI that is when it has a PI of 1.0, it will have an NPV Grade It Now Save its decisions on other projects. Based on the project's Pl, the less than $0 uation criterion, Purple Whale Foo equal to $0 alue. greater than $0 has a PI of 1.0, it will have an NPV