Gemco Jewelers earned $5 million in after-tax operating income in the most recent year. The firm also had capital expenditures of $4 million and depreciation of $2 million during the year, and the non-cash working capital at the end of the year was $10 million.

(a) Assuming that the firm's operating income will grow 20% next year, and that all other items (capital expenditures, depreciation, and non-cash working capital) will grow at the same rate, estimate the FCFF next year.

(b) If the firm can grow at 20% for the next five years, estimate the present value of the FCFF over that period. Assume a cost of capital of 12%.

(c) After year 5, the growth rate will drop to 5% forever. In year 6, the firm's capital expenditures will be 6.53m, and operating income, non-cash working capital and depreciation will be 5% higher than in year 5. In addition, the cost of capital will decline to 10%. Estimate the terminal value of the firm at the end of year five.

(d) Estimate the current value of the operating assets of the firm.