Motorola Mobility LLC is a company that develops mobile devices. Headquartered in Chicago, Illinois, United States, the...

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Motorola Mobility LLC is a company thatdevelops mobile devices. Headquartered in Chicago, Illinois, UnitedStates, the company was formed on January 4, 2011 by the split ofMotorola Inc. into two separate companies; Motorola Mobility tookon the company's consumer-oriented product lines, including itsmobile phone business and its cable modems and set-top boxes fordigital cable and satellite television services, while MotorolaSolutions 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’srequired rate of return is its WACC.

7- Calculate payback period USING EXCEL. If you know that googleaccepts projects with 4 years payback period. Would you accept thatproject?

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3.5 Ratings (386 Votes)

7). Payback period = time taken for the investment to break even.

Formula	Year (n)	0	1	2	3	4	5
	Cash flow (CF)	(12.50)	1.50	2.50	4.00	3.00	6.00
CFn-1 + CCFn	Cumulative Cash flow (CCF)	(12.50)	(11.00)	(8.50)	(4.50)	(1.50)	4.50
-CCF4/CF5	Fraction of year 5 (F)						0.25
(4 + F)	Payback period (in years)						4.25

Payback period is 4.25 years which is higher than the required payback period of 4 years so the project would not be accepted.

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Transcribed Image Text

Motorola Mobility LLC is a company thatdevelops mobile devices. Headquartered in Chicago, Illinois, UnitedStates, the company was formed on January 4, 2011 by the split ofMotorola Inc. into two separate companies; Motorola Mobility tookon the company's consumer-oriented product lines, including itsmobile phone business and its cable modems and set-top boxes fordigital cable and satellite television services, while MotorolaSolutions 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:YearCash flow(in billions)Net income (in billions)20121.5120132.5220144320153220166 (includes 3.5b selling price)1.5And that the average book value of asset is $8b and Google’srequired rate of return is its WACC.7- Calculate payback period USING EXCEL. If you know that googleaccepts projects with 4 years payback period. Would you accept thatproject?

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