Question

On January 1 of the current year, Rhondell Corporation holds accumulated E \& P of $90,000. Current E&P for the year is $270,000, earned evenly throughout the year. Elizabeth and Jonathan are the sole equal shareholders of Rhondell from January 1 to April 30 . On May 1 , Elizabeth sells all of her stock to Marshall. Rhondell makes two distributions to shareholders during the year, as indicated below. Analyze the distributions by completing the table that follows. Assume that the shareholders have sufficient basis in their stock for any amount that is treated as return of capital.

Answer 1

To calculate the price per share, we need to determine the present value of expected future profits and divide it by the number of shares.

Step-by-step explanation:

To determine the price per share for Babble, Inc., we need to calculate the present value of the expected future profits and divide it by the number of shares. The present value calculations are done separately for the profits received at different times. Let's assume a 15% interest rate. Adding up the present values of the profits, we get a total of $51.3 million. Dividing that by the number of shares (200), we find that the price per share should be about $256,500.