1. (20 points) You are valuing a potential acquisition target J-Mart. The company forecasts the following free cash flows (FCFF in millions of dollars). The weighted average cost of capital is estimated at 13 percent and the free cash flows are expected to continue growing at 5% after Year 3.

Year: 1 2 3 Free cash flow: -$20 $40 $42

The companys balance sheet shows $20 million in short-term investments that are unrelated to operations. The balance sheet also shows $170 million in debt, $40 million in preferred stock, and $100 million in total common equity.

a) Estimate the value of the firm.

b) If the company has 10 million outstanding shares of stock, what is your best estimate for the stock price per share?