Assume that Google invests $2.42 billion in capital expenditures, including $1.08 billion related to manufacturing capacity. Assume that these projects have a seven-year life and that management requires a 15% internal rate of return on those projects.
Required
1. What is the amount of annual cash flows that Google must earn from those expenditures to achieve a 15% internal rate of return? (Identify the seven-period, 15% factor from the present value of an annuity table and then divide $1.08 billion by the factor to get the annual cash flows required.)
2. BTN 11-1 must be completed to answer part 2. How does your answer to part 1 compare to Apple's required cash flows determined in BTN 11-1? What does this imply about each company's cash flow requirements for these types of projects?