You are considering acquiring a firm that you believe can generate a cash flow of $120,000 next year and the cash flows will grow at a 3% rate forever. The firm is available for sale for $1,300,000. Assume that the beta of the firm is 1.2 the risk-free rate is 4 percent and the expected market risk premium is 7 percent. What is the present value of expected cash flows?

$1,276,595.74

$842,105.26

$2,307,692.31

$1,318,681.32