Consider the case of Fuzzy Badger Transport Company: Fuzzy Badger Transport Company is considering investing $550,000 in a project that is expected to generate the following net cash flows: Year Cash Flow Year 1 $375,000 Year 2 $400,000 Year 3 $450,000 Year 4 $500,000   Fuzzy Badger uses a WACC of 8% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project’s PI (rounded to four decimal places). 2.8298   2.5725   2.3152   2.7011     Fuzzy Badger’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 (accept or reject)   By comparison, the net present value (NPV) of this project is ----------- (how much). On the basis of this evaluation criterion, Fuzzy Badger should ----------(invest or not invest) in the project because the project -------- (will not or will)   increase the firm’s value.

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.