Final answer:
The expected dividend per share for year 1 for Placer Corp. is $3.50. For an example company like Babble, Inc., with expected profits paid as dividends and 200 shares in the company, the present value (PDV) of future dividends is used to calculate the share price, leading to an estimated price per share of about $256,500.
Step-by-step explanation:
The expected dividend per share for year 1 for Placer Corp. is $3.50. The provided information clearly states that the dividend forecast is for year 1 to be $3.50 per share, with subsequent increases in the following years before stabilizing after four years. This is a straightforward question in the realm of finance that focuses on understanding projected dividends.
Using an example, consider Babble, Inc., which expects profits of $15 million, $20 million, and $25 million for the next three years, respectively. If all profits are paid out as dividends and there are 200 shares, the price per share is calculated using the present value (PDV) of future dividends discounted by the chosen interest rate, which in this example is 15%. It's important to note that expected profits are estimates, and the actual value may differ.
The present value calculations are based on what future amounts are worth now, given the interest rate. For Babble Inc., with a total PDV of profits of $51.3 million and 200 shares, the per-share price is about $256,500. This is just an illustrative example and may not match real-world scenarios exactly, but it serves to explain the methodology behind the calculation.