Question

Just prior to the end of the fiscal year, Biofuel Corporation reported the following information:

Common stock ($0.20 par value)
Additional paid-in capital
Retained earnings
Treasury stock
Cash flows from financing activities
§ 64,000
1,940,000
840,000
0
21,000
Required:
Complete the table below for each of the three following independent cases:
Note: Round "Par per share" answers to 2 decimal places.
Case 1: The board of directors declared a cash dividend of $0.02 per share.
Case 2: The board of directors declared and issued a 100 percent stock dividend when the stock was selling at $12 per share
Case 3: The board of directors announced a 2-for-1 stock split. The market price prior to the split was $14 per share.

Answer 1

An investor would pay approximately $213,000 per share for the stock in this company.

Step-by-step explanation:

To determine the price per share, we need to calculate the present value of the projected profits and divide it by the number of shares. First, we calculate the present value for each year's profit using a discount rate of 15%:

1. Present value of $15 million: $15 million / (1 + 0.15) = $13.04 million
2. Present value of $20 million: $20 million / (1 + 0.15)² = $14.55 million
3. Present value of $25 million: $25 million / (1 + 0.15)³ = $15.01 million

Next, we sum up the present values: $13.04 million + $14.55 million + $15.01 million = $42.60 million. Finally, we divide the total present value by the number of shares (200): $42.60 million / 200 = $213,000. Therefore, an investor would pay approximately $213,000 per share for the stock in this company.