In January 2021, Alphabet (Google) finally closed on its acquisition of Fitbit Inc (FIT) for $7.35 per share or roughly $2,100 million, after announcing the transaction in November 2019. Fitbit has sold more than 100 million devices, supporting over 29 million active users globally. Growth in wearabes is anticipated to be 8.0% per annum through 2030. In 2019, despite revenues exceeding $1.4 billion, Fitbit generated negative cash flows. With Alphabet's resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and improve efficiencies. Alphabet therefore expects cash flows to be a modest $30 million in the following year. Google's cost of capital is 10.0%. 1. Based on the data provided above, what growth rate in cash flows is required to cover the cost of acquisition? Do you agree with Google's decision to acquire Fitbit? Why? (show calculations; 10 points) [gr-r- (CF,/C)] 2. Using the exhibit below, assess the performance of Fitbit. Does this change your decision to acquire the company? (support answer with financial ratios; 10 points) 3. Based on our case study, what other initiative(s) should Alphabet implement to address its main challenge(s) in diversification? Briefly describe. (10 points) FITBIT (5000) Revenue Cost of revenue Gross profit 2019 2018 2017 2016 1,434,788 1,511,983 1,615,519 2.169,461 1.007116 908,404 924,618 1,323,577 427,672 603,579 690,901 845,884 R&D expense 300,354 332,169 343,012 320,191 Sales & marketing 329,800 344,091 415,042 491,255 General & administrative 118,231 116,627 133,934 146,903 Change in consideration Operating income (320,713) (189,308) (201,087) (112,465) Other income, net Income tax expense Net income 11,648 5,166 6,443 3.170 11,646 1.687 82,548 (6,518) (320,711) (185,829) (271,192) 102.777) Total current assets PPE, net Other assets Total Assets 1,119,752 1,311,811 1,384,365 1.480.571 82,756 106,286 104,908 76 553 165.578 97.450 92.802 264.802 1,368,086 1,515,547 1,582,075 1.821.926 Total current liabilities Other liabilities Total Liabilities 764,610 116,213 880,823 719.383 60,226 779,609 701,300 56,812 758,112 756,340 67 054 823 394 Shareholders' equity 487,263 735,938 823,963 998,532