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
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 Googles required rate of return is its WACC.
Calculate profitability index of the above project. Would you accept or reject that deal? Why?
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