Question

The books of Sheridan Corporation carried the following account balances as of December 31, 2020. Cash Preferred Stock (6% cumulative, nonparticipating Common Stock (no-par value, 280,000 shares issu Paid-in Capital in Excess of Par-Preferred Stock Treasury Stock (common 2,800 shares at cost) Retained Earnings The company decided not to pay any dividends in 2020. The board of directors, at their annual meeting on December 21, 2021, declared the following: "The current year dividends shall be 6% on the preferred and $0.40 per share on the common. The dividends in arrears shall be paid by issuing 1,500 shares of treasury stock." At the date of declaration, the preferred is selling at $85 per share, and the common at $12 per share. Net income for 2021 is estimated at $80,500.

(a) Prepare the journal entries required for the dividend declaration and payment, assuming that they occur simultaneously. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 3,487.) Account Titles and Explanation For preferred dividends in arrears: For preferred current year dividend: For common share dividend: (b) Could Sheridan Corporation give the preferred stockholders 2 years' dividends and common stockholders a 40 cents per share dividend, all in

Answer 1

To determine the price per share an investor would pay for Babble, Inc., one calculates the present value of expected dividends using a 15% interest rate and then divides this by the number of shares, which results in $256,500 per share. This reflects the investor's expectation for dividends over the company's life.

Step-by-step explanation:

The valuation of shares for Babble, Inc. could be determined by calculating the present value of the expected dividends considering the required rate of return or interest rate. To estimate what an investor would pay for a share of this company, one would add up all the present values of profits expected right away, one year from now, and two years from now at the given interest rate. After determining this present value of total profits (PV), divide by the number of shares to find the price per share.

Using a 15% interest rate and the projected profits of $15 million, $20 million, and $25 million over the three years, we calculate the present value for each profit, add them together, and then divide by the total shares, 200 in this case. The final calculation would indicate an investor might be willing to pay approximately $256,500 per share of Babble, Inc. This price reflects the investors' expectations for the dividends they will receive over the company's remaining life.