Final answer:
The expected price of a stock in the future can be calculated by the present value of expected dividends, discounted at the required return rate. In Babble, Inc.'s case, with profits paid as dividends, the price per share would be $256,500, showing the value of dividends to an investor.
Step-by-step explanation:
To determine the expected price of a stock in 6 years when planning to sell it, one must take into account the dividends that are expected to be paid over that period, as well as the required return rate. To answer the question regarding the price of Babble, Inc.'s stock, we must calculate the present value of future dividends. This involves discounting future dividend payments at the required return rate. In the example given, Babble, Inc. has profits of $15 million, $20 million, and $25 million over the next three years, which will be paid out as dividends. To find the price an investor would pay for a share of stock, one would divide the present value of these profits by the number of shares. If done correctly, this would yield the price per share as $256,500, illustrating how an investor values the opportunity to receive dividends from a profitable company.