----------------------------------------------------------------------------------------------------------------------------------------------------------

Answer Choices!!!

--------------------------------------------------------------

----------------------------------------

---------------------------------------------------

---------------------------------------------------------------

-------------------------------------------------------------

----------------------------------

Estimating the cash flow generated by $1 invested in investment 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 Free Spirit Industries Inc.: Free Spirit Industries Inc. is considering investing $450,000 in a project that is expected to generate the following net cash flows: Free Spirit uses a WACC of 7% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places). 2.94342.61633.59743.2704 Free Spirit'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, Free Spirit 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 ; when it has a PI of 1.00, it will have an NPV equal to $0. Projects with PIs 1.00 will exhibit negative NPVs. ee Spirit'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. -ison, the net present value (NPV) of this project is . On the basis of this evaluation criterion, Free Spirit should in the project because the project increase the firm's value. \begin{tabular}{l|l} 2.6163 & $571,695 \\ 3.5974 & $970,610 \\ 3.2704 & $1,123,865 \\ \hline \end{tabular} Free Spirit's decision to accept or reject this project is indepel $1,021,695 cisions on other projects. Based on the project's PI, the firm should By comparison, the net present value (NPV) of this project is . On the basis of this evaluation criterion, Free Spirit should in the project because the project increase the firm's value. By comparison, the net present value (NPV) of this project is . On the basis of this evaluation criterion, Free Spirit should in the project because the project increase the firm's value. it has a PI greater than 1.00, it will exhibit an NPV ; when it has a PI of 1.00, it will have an NPV equal to 0 . PIS 1.00 will exhibit negative NPVs. By comparison, the net present value (NPV) of this project is . On the basis of this evaluation criterion, Free Spirit should in the project because the project increase the firm's value. Projects with PIs 1.00 will exhibi NPVs. Free Spirit'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 the basis of this evaluation criterion, Free Spirit should in the project because the project value. When a project has a PI greater than 1.00, it will exhibit an NPI ; when it has a PI of 1.00, it will have an NPV equal $ Projects with PIs 1.00 will exhibit negative NPVs. By comparison, t 'alue (NPV) of this project is . On the basis of this evaluation criterion, Free Spirit should ecause the project increase the firm's value. When a project h -han 1.00, it will exhibit an NPV ; when it has a PI of 1.00, it will have an NPV equal to $0. Projects with PIs 1.00 will exhibit negative NPVs