Ipswich Inc. is a small family-run business specializing in the manufacture of sporting goods. After almost 30 years, the current owners are thinking about selling the business and retiring. To get a sense of what the business is worth, they asked an investment analyst for help. The analyst has provided the following estimates for Ipswichs free cash flows (FCF) over the next two years. The analyst has also indicated that the FCF should grow at an average annual rate of 3% after this two-year period and that the firms weighted average cost of capital is 10%.

Year 1 Year 2

Estimated FCF 3,500,000. 3,750,000

Assuming Ipswich has an outstanding long-term loan of $12.5 million and 1 million common shares outstanding, what is the total value of the firm and the value of a common share?

a) Total value of firm: $38,202,480; value of a common share: $25.70

b) Total value of firm: $51,883,117; value of a common share: $39.38

c) Total value of firm: $51,883,117; value of a common share: $51.88

d) Total value of firm: $62,428,571; value of a common share: $49.93