Final answer:
An investor would pay for a share of stock in Babble, Inc. based on the present value of anticipated dividend payouts. The present value of the dividends is calculated using a discount rate, and the total present value is then divided by the number of shares to get the price per share. Without knowing the discount rate, the exact share price cannot be determined.
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 expected dividend payouts. Babble, Inc. anticipates profits of $15 million immediately, $20 million in one year, and $25 million in two years, with these profits being distributed as dividends. The present value of each dividend payment can be found using a discount rate that reflects the investor's required rate of return. The present value (PV) of each dividend is calculated using the formula: PV = $Dividend / (1 + r)^n, where 'r' is the discount rate and 'n' is the number of years until the dividend is received.
This calculation needs to be done for each dividend and then summed to find the total present value of all dividends. Finally, to find out the price per share, you would divide the total present value by the number of shares, which is 200 in this case. Without the discount rate, we cannot precisely calculate the share price, but the investor would likely use a rate that compensates for the risk of the investment and potential alternative uses of the funds over the two-year period until the company is disbanded.