- This short project is strictly an individual work.

- This mini-case is available at 8:00am on July 6^th, 2019 and is due on 11:59pm on July 7^th, 2019.

- You are required to show your working forALLquestions.Please submit two (2) documents to blackboard. (1) this word document with all answers written in the designated answer boxes (50% of the grade) , and (2) an excel sheet that shows how you reached these answers (50% of the grade).

- Please type (Do not hand write) both your workings and the final answers in the designated solution areas.

- Please feel free to extend the size of the solution boxes provided as you feel the necessity to do so.

- Once you are done, please save this document as a PDF and upload it back + excel sheet that shows the answer formulas to the same position on blackboard that you used to download the case in the first place.

Google purchasing Motorola mobility

1- In the previous 5 years, Google paid an annual dividend as follows:

Year

Dividends

2011

2.7

2010

2.5

2009

2.2

2008

1.8

2007

1.5

Google is expected to pay a dividends of $3 in the next year (2012). What is the cost of equity of Google if its current stock price is $90?

2- As a technology-based firm, Google has a high beta of 1.4. if the risk-free rate of return is 5% and the market risk premium is 3%, calculate the cost of equity of Google using the capital asset pricing model (CAPM)?

3- As a financial analyst, you know that both DGM and the CAPM used in # 1 and # 2 above can be inaccurate, so you decided to calculate the average cost of equity of google. What is the average cost of equity of Google?

4- Google has a preferred stock that pays an annual dividend of 6$ to shareholders. What is the cost of Google's preferred stocks if it is currently priced at $100?

5- Google has one bond outstanding that matures in 20 years. This bond has a coupon rate of 8%, paid semiannually. The bond currently sells for $1,124. What is the pre-tax cost of debt of Google?

6- Google currently has a 5 million common shares outstanding, and a 1 million preferred shares outstanding, and 100,000 bonds outstanding. Use your answers in #3, #4, and #5 to calculate Google Weighted Average Cost of Capital (WACC) if the corporate tax rate is 35%.

Motorola Mobility LLCis a companythat developsmobile devices. Headquartered inChicago,Illinois, United States, the company was formed on January 4, 2011 by the split ofMotorola Inc.into two separate companies; Motorola Mobility took on the company's consumer-oriented product lines, including itsmobile phonebusiness and itscable modemsandset-top boxesfordigital cableandsatellite televisionservices, whileMotorola Solutionsretained 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.

7- Calculate net present value (NPV) for the above investment decision. Would you accept or reject this investment decision? Why?

8- Calculate payback period. If you know that google accepts projects with 4 years payback period. Would you accept that project?

9- Calculate the Motorola project internal rate of return (IRR). Would you accept or reject this project? Why?

10- Calculate the average accounting return (AAR). If you know that the required average accounting return is 25%. Would you accept that project?

11- Calculate profitability index of the above project. Would you accept or reject that deal? Why?