Question

Rouse Corporation's December 31, 2015 balance sheet showed the following:

8% preferred stock, $10 par value, cumulative, 20,000 shares


authorized; 15,000 shares issued
$ 150,000
Common stock, $10 par value, 2,000,000 shares authorized;


1,950,000 shares issued, 1,930,000 shares outstanding
19,500,000
Paid-in capital in excess of par—preferred stock
60,000
Paid-in capital in excess of par—common stock
24,000,000
Retained earnings
7,650,000
Treasury stock (20,000 shares)
630,000

Rouse's total stockholders' equity was
A) $51,990,000.
B) $43,710,000.
C) $51,360,000.
D) $50,730,000.

Answer 1

To determine the value of a share in Babble, Inc., calculate the present value of future profit dividends, considering a discount rate, and divide by the total number of shares (200).

Step-by-step explanation:

Calculating Share Value Based on Future Profits

To calculate the value of a share in Babble, Inc., we use the present value (PV) of the future profits that will be paid out as dividends. The profits are $15 million immediately, $20 million one year from now, and $25 million two years from now. The company has 200 shares of stock, meaning each share’s value is determined by dividing the present value of total profits by the number of shares.

Let's assume a discount rate (required rate of return) to calculate the present value of each amount. The present value PV is calculated as PV = Future Value / (1 + r)^n, where 'r' is the discount rate, and 'n' is the number of years in the future the payment is to be received.

Once the present value of all future profits is calculated, divide this total by 200 to find the value per share.