Question

On January 5, 2019, Epsom purchased and retired 1M shares for $9M. Immediately after retirement of the shares, the balances in the paid-in capital and retained earnings accounts are:

Answer 1

To calculate the price per share of stock in Babble, Inc., we need to determine the present value of the expected future dividends and discount them at the investor's required rate of return. The total present value will represent the price per share an investor would pay.

Step-by-step explanation:

The question is asking about the price that an investor would pay for a share of stock in Babble, Inc. based on the expected profits and dividends. To calculate the price per share, we need to determine the present value of the expected future dividends. We will discount the dividends at an appropriate rate of return, which represents the investor's required rate of return. Then we can sum up the present values of the dividends to find the price per share.

Here is the calculation:

1. 
   
2. Present value of $15 million: $15 million / (1 + r)
3. 
   
4. Present value of $20 million: $20 million / (1 + r)^2
5. 
   
6. Present value of $25 million: $25 million / (1 + r)^3
7. 
   

Add those present values together to get the total present value of the expected dividends. This total present value represents the price per share that an investor would be willing to pay for a share of stock in Babble, Inc.