Final answer:
The subject is Business, and the question is of College level, dealing with stock valuation using the dividend discount model. The value of a share of Babble Inc. can be determined by calculating the present value of expected dividend payments, considering the required rate of return and the number of shares.
Step-by-step explanation:
The question involves calculating the present value of a company's stock based on its expected dividend payments and the required rate of return of an investor. To evaluate the worth of Rao;Wau Cabooses' stock, we must consider the diminishing dividend payments and discount them by the investor's required rate of return. This is a typical finance problem that can be solved using the dividend discount model (DDM).
If Babble Inc. is expected to pay dividends of $15 million, $20 million, and $25 million over the next two years before being disbanded, we can calculate the present value of these dividends to determine the value of a share. Assuming there are 200 shares, the present value of the dividends can be found using the formula for present value of a cash flow, which requires both the amount of the future cash flow and the rate of return.
For example, the present value (PV) of the first dividend payment when profits are $15 million is calculated by dividing the profit by the number of shares ($15,000,000 / 200 shares), and not discounting it since it is received immediately. For the subsequent payments, we must discount them by the rate of return expected by the investor over one and two years respectively.