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Nature's Friend Co. is a young eco-friendly paper, personal care, and cleaning product company that newly listed on the TSX Venture Exchange. Because the company is growing at a significantly high rate, management would like to reinvest all profits generated over the next 7 years back into operations. As such, no dividend will be paid over this period. The company however expects to pay dividends after that, starting with a $1.50 dividend at the end of year 8. The company also expects to be able to keep the dividends growing at the pace of the earnings, at 25% for the 5 years after the first dividend (years 9 to 13), lowering slightly to 20% for the following 2 years, and then stabilizing at a sustainable growth rate of 5% thereafter. Because of the high risk of young companies like Nature's Friend, investors required a rate of return of 20% on their investment. How much would you be willing to pay for Nature's Friend Co.'s shares? Formula Sheet PV- FV (1+r) pr. -g 1 PVC or or F-c 6Y-1) ---1-6) of APR 1 EAR-1 -1 EAR-1 APR EPR-1 (FV - MV) Y7M FVMW Del P- D. D D D+P - 5 D (1+r) PVCCATS- IdT dur SIT YTM + + FVMV DU Pes 30 r D D (1+r)(1+r) D. + P + D PVCCATS - IdT 111+0.57 dur Financial Ratios Equity Multiplier = Total Assets / Total Equity Times Interest Earned = EBIT / Interest Inventory Turnover = Cost of Goods Sold / Inventory Total Asset Turnover = Sales / Total Assets Profit margin = Net Income / Sales Market-to-Book Ratio = Market Value per Share / Book Value per Share ROE = PM x TAT x EM