You are told to value a private firm with the following information: - EBIT: $100,000; it will grow at 5% forever. - 40% of EBIT is attributed to the owner who will not stay on if the business is sold. - D/E ratio: 1 - Pre-tax cost of debt: 8% - Equity beta: 1.1 - Risk-free rate: 7%; market risk premium: 5.5% - Tax rate: 40% - Net capital expenditure: 10,000; it will grow at 5% forever too. a. Estimate the value of the firm, assuming that it will be sold to a diversified investor.

b. Would you answer be different if the owner offered to stay on for one year