Ulysses Inc. is a shipping company with $100 million in earnings before interest and taxes that is expected to have earnings growth of 10% for the next five years. At the end of the fifth year, you estimate the terminal value using a multiple of 8 times operating income (which is the average for the sector).

a. Estimate the terminal value of the firm.

b. If the cost of capital for Ulysses is 10%, the tax rate is 40%, and you expect the stable growth rate to be 5%, what is the return on capital that you are assuming in perpetuity if you use a multiple of 8 times operating income?