Final answer:
Barney can generally deduct a maximum of $3,000 against his ordinary income if he has no gains to offset the stock loss. The price an investor would pay for a share of Babble, Inc.'s stock depends on the present value of expected dividends. In a similar context, Example 'A' explained the calculation of profit from stock transactions after considering fees.
Step-by-step explanation:
The deduction Barney can claim from his stock loss depends on various factors, including tax laws and whether he has any capital gains to offset the loss. Generally, if Barney has no gains to offset, he can deduct a maximum of $3,000 per year against his ordinary income, carrying forward additional losses to future years.
In the case of Babble, Inc., determining what an investor would pay for a share of stock involves calculating the present value of expected dividends. Assuming an investor would want a return adequate to compensate for their investment risk, they would likely apply a discount rate to the future profits of $15 million, $20 million, and $25 million expected from Babble, Inc. to determine the present value of those earnings and divide by the number of shares. Without a specified discount rate, the exact price per share cannot be determined.
Example ‘A’ showcased a calculation where Randy makes a profit from buying and selling stocks. After accounting for the transaction fees, the profit is calculated by subtracting the initial investment and fees from the total amount received from selling the shares.