Question

O'brien industries inc. is a book publisher. The available-for-sale investments at cost and fair value on December 31, 20y4, are as follows: Issuing company cost fair value bernard co. 38,25037,500 chadwick co. 65,520 63,770 103,770101,270 the investment in jolly roger co. stock represents 30?

Answer 1

To determine the value of a share of stock in Babble, Inc., an investor would calculate the present value of expected future dividends using a 4% discount rate and divide the total present value by the number of shares available.

Step-by-step explanation:

When considering the value of a share of stock in Babble, Inc., which is selling 200 shares and expecting profits of $15 million immediately, $20 million one year from now, and $25 million two years from now, an investor would use the concept of present value to determine the price they would be willing to pay for a share today. To calculate the present value of the expected dividends, one must discount the future cash flows back to the present using a discount rate, which is often the required rate of return for the investor.

Assuming an investor's required rate of return is 4%, they would calculate the present value of each year's dividends and then sum these values to find the total present value of the stock dividends. Then, this total value is divided by the number of shares to find the value per share a rational investor might pay.