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.