Year Cash Flow Year 11 $275,000 Year 2 $500,000 Year 3 $400,000 Year 4- $450,000 Fuzzy Badger Transport Company uses a WACC of 10% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places): 0.4622 0.5546 0.5084 0.4391 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 Pl. the firm should the project. 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 PT. the firm should the project. accept By comparison, of the project is On the basis of this evaluation criterion, Fuzzy Badger Transport Company should increase the firm's value. reject project because the project 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 0.4391 Fuzzy Badger Transport Company's decisi the firm should the project. By comparison, the NPV of this project is in the project because the project A project with a negative NPV will have a PI that is -$1,478,695 $1,774,674 reject this project is independent of its decisions on other projects. Based on the project's Pt. $1,478,895 4 Y On the basis of this evaluation criterion, Fuzzy Badger Transport Company should increase the firm's value. when it has a PI of 1.0, it will have an NPV 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 PL. not invest Id the project. invest In, the NPV of this project is On the basis of this evaluation criterion, Fuzzy Badger Transport Company should Increase the firm's value. in the project because the project :when it has a PI of 1.0, it will have an NPV A project with a negative NPV will have a PI that is 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 PT, the firm should the project. will will not By comparison, the NPV of this project is On the basis of this evaluation criterion, Fuzzy Badger Transport Company should increase the firm's value. in the project because the project + 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 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 Pl. the firm should the project. less than 1.0.1 By comparison, the NPV of this project is equal to 1.0 asis of this evaluation criterion, Fuzzy Badger Transport Company should ase the firm's value. in the project because the project greater than 1.0 A project with a negative NPV will have a PI that is IS :when it has a PI of 1.0, it will have an NPV 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 PL, the firm should the project. less than 40 By comparison, the NPV of this project is On the basis of this evaluation criterion, Fuzzy Badger Tra greater than $0 hould i increase the firm's value. in the project because the project equal to $0. A project with a negative NPV will have a PI that is when it has a Pt of 1.0, it will have an NPV 9. Prontability index Estimating the cash flow generated by $1 invested in a project The profitability index (Pt) 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: Fuzzy Badger Transport Company is considering investing $2,750,000 in a project that is expected to generate the following net cash flows! Year Cash Flow Year 1 $275.000 Year 2 $500,000 Year 3 $400,000 Year 4 $450,000
