Question

The following is a summary of all relevant transactions of Stotesbury Corporation since it was organized in 2025 :

a.In 2025, 500,000 shares were authorized and 110,000 shares of common stock ( $10 par value) were issued at a price of $38. In 2026, 11,000 shares were issued as a stock dividend when the stock was selling for $46. Two thousand shares of common stock were bought in 2026 at a cost of $51 per share. These 2,000 shares are still in the company treasury.
b.In 2026,50,000 preferred shares were authorized and the company issued 8,000 of them ($100 par value) at $106. Some of the preferred stock was reacquired by the company and later reissued for $16,100 more than it cost the company.
c.The corporation has earned a total of $969,000 in net income after income taxes and paid out a total of $278,800 in cash dividends since incorporation. Prepare the stockholders' equity section of the balance sheet in proper form for Stotesbury Corporation as of December 31, 2026. Account for treasury stock using the cost method.

Answer 1

To determine what an investor would pay for a share of Babble, Inc., expected future dividends are discounted to present value and summed up. However, without a specified rate of return, the exact price per share cannot be calculated.

Step-by-step explanation:

The question at hand requires a calculation of what an investor would pay for a share of stock in Babble, Inc., a company planning to disband in two years, with expected profit payouts at three different time points. To determine the value of one share, we must take into account the expected dividends paid out and the number of shares available. The total profits are $15 million immediately, $20 million a year from now, and $25 million two years from now, with all profits being paid as dividends. Given the company has 200 shares, the payment per share would be $75,000 immediately, $100,000 after one year, and $125,000 after two years. An investor will use the present value concept to discount these future payments back to their present value, according to the desired rate of return. Unfortunately, the rate of return is not provided in the question, so an exact number cannot be given without this information. However, the process would involve discounting each of the expected dividend payments to present value terms and summing them to obtain the price an investor would be willing to pay for one share today.