The project has payback period

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Reference no: EM131924375

Sorenson Motors (SM) is considering a project that has the following cash flows:

Year Cash Flow

0 Initial Outlay

1) $2,000

2) $3,000

3) $3,000

4) $1,500

The project has a payback period of 2.5 years. The weighted average cost of capital is 12%. Which of the following statements is NOT correct?

a) Acceptance of this project would increase SM's value by $7,265.91.

b) The project is expected to generate $1.12 for each $1.00 of investment.

c) If SM were to accept this project, its shareholders wealth would increase by $765.91

d) The project is generating more cash than is needed to service its debt, and this excess cash accures solely to SM's stockholders.

Reference no: EM131924375

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