Question

Motorola Mobility LLC is a company that develops mobile devices. Headquartered in Chicago, Illinois, United States, the company was formed on January 4, 2011 by the split of Motorola Inc. into two separate companies; Motorola Mobility took on the company's consumer-oriented product lines, including its mobile phone business and its cable modems and set-top boxes for digital cable and satellite television services, while Motorola Solutions retained the company's enterprise-oriented product lines. Early 2012, Google decided to purchase Motorola mobility LLC for $12.5b. Google had a plan to keep Motorola mobility for 5 years. Google financial analysis team made the following forecasts:

Year	Cash flow (in billions)	Net income (in billions)
2012	1.5	1
2013	2.5	2
2014	4	3
2015	3	2
2016	6 (includes 3.5b selling price)	1.5

And that the average book value of asset is $8b and Google’s required rate of return is its WACC.

Calculate payback period. If you know that google accepts projects with 4 years payback period. Would you accept that project? (Using excel, formulas viewable)

Answer 1

Sol). With formula

With values