What is the least amount mobile pro should accept

Reference no: EM13286187

SprintPCS wants to enter into a joint venture with your company, Mobile Pro Inc, an all equity financed large-scale wireless internet access company (they contract with cities [who pay them with taxpayer dollars] to provide free internet access on a city-wide basis). SprintPCS wants the right to take a 75% stake in Mobile Pro 1 year from today. One year from today, if SprintPCS exercises its right, they will pay Mobile Pro a one-time fee of $1.5 billion and will receive a 75% stake in Mobile Pro. Various city-wide wireless internet access networks (complete with towers) are the only asset of Mobile Pro and accounts for the entire market value of Mobile Pro, currently $0.5 billion. The market values Mobile Pro assuming that if their technology wins the wireless internet delivery race (which will be known one year from today) Mobile Pro will be worth $15 billion. However, if competing technologies win the race then Mobile Pro will be worth $0.1 billion. The $15 billion and $0.1 billion valuations represent the time 1 value of all future cash flows expected to be generated by charging cities the license fees. Mobile Pro currently needs capital to finish the network and views the selling of the right to SprintPCS as a perfect solution. The current risk-free rate is 5%. What is the least amount Mobile Pro should accept from SprintPCS in exchange for this right.

Reference no: EM13286187

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