Question

You are given the following information for Ted's Dread Co.:

Sales = $52,300
Costs = $38,500
Addition to retained earnings = $3,000
Dividends paid = $990
Interest expense = $1,450
Tax rate = 30 percent

Answer 1

To determine the price per share, calculate the present value of expected profits and divide it by the number of shares.

Step-by-step explanation:

In order to determine the price per share for Babble, Inc., we need to calculate the present value of the expected profits. The present value calculations consider the time value of money and the expected interest rate. We need to calculate the present value separately for the profits received at different times. Once we have the present value of total profits, we can divide it by the number of shares to get the price per share.

In this case, the present value of total profits is $0.2565 million. Dividing that by the number of shares (200) gives us $256,500 per share.

It's important to note that expected profits are an estimate and the interest rate used is a decision made based on various factors.