Final answer:
An investor would consider the total expected payouts per share from Babble, Inc., which includes immediate, one year, and two years dividends, and then discount them back to present value considering their required rate of return. Without the discount rate, we can only calculate the total non-discounted earnings per share, but the investor would typically pay less than this sum.
Step-by-step explanation:
To determine what an investor would pay for a share of stock in Babble, Inc., we need to calculate the present value of the dividends expected to be paid by the company. Babble, Inc. plans to payout dividends of $15 million immediately, $20 million one year from now, and $25 million two years from now. Assuming an investor requires a certain rate of return, which could also be seen as the cost of capital or discount rate, we would discount these future dividends back to their present value.
However, without the rate of return, we can't calculate the exact present value of the shares, but we can calculate the earnings per share (EPS) based on the given profits. Since there are 200 shares of stock, we divide the total profits by the number of shares to find the EPS at each profit level. Here's how it would look:
- Immediate dividend per share = $15 million / 200 shares = $75,000 per share
- Dividend in one year per share = $20 million / 200 shares = $100,000 per share
- Dividend in two years per share = $25 million / 200 shares = $125,000 per share
By adding up these dividends, we get the total expected payout per share over the next two years, without discounting for the time value of money. The investor's willingness to pay for each share now would depend on their required rate of return to discount these earnings back to the present value. Typically, an investor would pay less than the sum of these payouts to account for the time value of money, risk, and the lack of future earnings beyond the two-year timeframe.