Lamps Galore Inc. manufactures table lamps and earns an after-tax return on capital of 15% on its current capital invested (which is $100 million). You expect the firm to reinvest 80% of its after-tax operating income back into the business for the next four years and 30% thereafter

(the stable growth period). The cost of capital for the firm is 9%.

a. Estimate the terminal value for the firm (at the end of the fourth year).

b. If you expect the after-tax return on capital to drop to 9% after the fourth year, what would your estimate of terminal value be?