Assume that you are analyzing whether Facebook should introduce a new smartphone. Based upon your estimates of the cash flows from the phone, you estimate a net present value of -$500 million. However, you believe that the phone will increase advertising revenues on Facebook by $90 million next year, growing 1.5% in perpetuity. The cost of capital for smartphones is 13%, the cost of capital for the advertising business is 11% and the marginal tax rate is 35%. What is the net value effect to Facebook of introducing the smartphone?

a.

115.79 million

b.

-247.37 million

c.

21 million

d.

-44 million