Question
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
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? Question 4 options: Acceptance of this project would increase SMs value by $7,265.91. The project is expected to generate $1.12 for each $1.00 of investment. If SM were to accept this project, its shareholder's wealth would increase by $765.91. The project is generating more cash than is needed to service its debt, and this excess cash accrues solely to SMs stockholders.
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