In 1956, AT&T Laid Its First Underwater Phone Line

Multiple Choice

In 1956, AT&T laid its first underwater phone line. By 1996, AT&T Submarine Systems, the division of AT&T that installs and maintains undersea communication lines, had seven cable ships and 1000 workers. On October 5, 1996, AT&T announced that it was seeking a buyer for its Submarine Systems division. The Submarine Systems division of AT&T was posting a profit of $850 million per year. If a prospective bidder considered that over a 25-year period, profits of the division would grow by 10% per year (after which it would be obsolete) and that profits could be reinvested at an annual return of 20%, what would the prospective bidder have considered to be the 25-year present value of its Submarine Systems division? Assume a continuous stream and round your answer to the nearest billion dollars. You may use technology to calculate the answer.

A) $4 billion
B) $3 billion
C) $8 billion
D) $9 billion
E) $126 billion