Ulysses Inc. is a retail firm that reported \($1.5\) billion in after-tax operating income on \($15\) billion in revenues in the just-ended financial year; the firm also had a capital turnover ratio of 1.5.

The firm’s cost of capital is 10%.

a. If you expect operating income to grow 5% a year in perpetuity, estimate the value-to-sales ratio for the firm.

b. How would your answer change if you were told that the operating income will grow 10% a year for the next five years and then grow 5%

in perpetuity?