Final answer:
To determine the price of a share of HNH stock, we need to calculate the present value of the dividends that will be paid in perpetuity. Using the formula for the present value of perpetuity, PV = D / r, where PV is the present value, D is the annual dividend, and r is the required rate of return, we can calculate the price of a share of HNH stock. Assume the required rate of return is 12%.
Step-by-step explanation:
To determine the price of a share of stock, we need to calculate the present value of the dividends that will be paid in perpetuity by the company. In this case, NH Corporation will pay a constant dividend of $1.75 per share, per year.
Using the formula for the present value of perpetuity, PV = D / r, where PV is the present value, D is the annual dividend, and r is the required rate of return, we can calculate the price of a share of HNH stock.
Let's assume the required rate of return is 12%. Using the formula, PV = $1.75 / 0.12 = $14.58. Therefore, the price of a share of HNH stock is $14.58.
The price of a share of Babble, Inc., assuming dividends are paid as profits and using a present value calculation, would be the sum of the present values of expected dividends. The present value of $15 million paid immediately (at a discount rate of zero) is $15 million. One year from now, $20 million needs to be discounted for one year, and $25 million needs to be discounted for two years, using the appropriate discount rate (which isn't provided in this question). Once these present values are calculated, they are added together and then divided by the total number of shares to find the price per share.