Homework Help is Here – Start Your Trial Now!
Business
Finance
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 $2,750,000 in a project that is expected to generate the following net cash flows: Year Year 1 Cash Flow $375,000 Year 2 $425,000 Year 3 $450,000 $500,000 Year 4 Purple Whale Foodstuffs Inc. 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): ○ 0.4988 ○ 0.5237 0.5487 ○ 0.5736 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.

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 $2,750,000 in a project that is expected to generate the following net cash flows: Year Year 1 Cash Flow $375,000 Year 2 $425,000 Year 3 $450,000 $500,000 Year 4 Purple Whale Foodstuffs Inc. 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): ○ 0.4988 ○ 0.5237 0.5487 ○ 0.5736 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.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 4CMA: Foster Manufacturing is analyzing a capital investment project that is forecast to produce the...
See similar textbooks
icon
Related questions
Question

By comparison, the NPV of this project is (-1,516,078, -1,378,253, -1,309,340). On the basis of this evaluation criterion, Purple Whale Foodstuffs Inc. should (not invest, invest) in the project because the project (will, will not) increase the firm’s value.    A project with a negative NPV will have a PI that is (less than 1.0, equal to 1.0, greater than 1.0) ; when it has a PI of 1.0, it will have an NPV (equal to $0, less than $0, greater than $0)

Fill in the blank. 

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 $2,750,000 in a project that is expected to generate the following net cash flows: Year Year 1 Cash Flow $375,000 Year 2 $425,000 Year 3 $450,000 $500,000 Year 4 Purple Whale Foodstuffs Inc. 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): ○ 0.4988 ○ 0.5237 0.5487 ○ 0.5736 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.
Transcribed Image Text: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 $2,750,000 in a project that is expected to generate the following net cash flows: Year Year 1 Cash Flow $375,000 Year 2 $425,000 Year 3 $450,000 $500,000 Year 4 Purple Whale Foodstuffs Inc. 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): ○ 0.4988 ○ 0.5237 0.5487 ○ 0.5736 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.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS