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

To determine the price per share, we need to calculate the present value of the future profits and divide it by the number of shares. Using a 15% interest rate, the price per share is approximately $213,100.

Step-by-step explanation:

In order to determine the price per share, we need to calculate the present value of the future profits and divide it by the number of shares. Using a 15% interest rate, we can calculate the present value of the profits as follows:

1. $15 million / (1 + 0.15) = $13.04 million
2. $20 million / (1 + 0.15)^2 = $15.17 million
3. $25 million / (1 + 0.15)^3 = $14.41 million

Next, we add up all the present values to get a total present value of $42.62 million. Finally, we divide this total by the number of shares, 200, to get a price per share of approximately $213,100.