Final answer:
The cost per share for Rob's initial investment in Clarkco is $5.00, and the total value of shares issued is $5,000. For Babble, Inc., an investor would assess the present value of future dividends to determine what they would pay for a share of stock, considering the company's expected profits and the total number of shares available.
Step-by-step explanation:
If Rob incorporates Clarkco in 2007 and pays $5,000 for 1,000 shares, the cost per share for the initial investment would be calculated by dividing the total amount paid by the number of shares. Therefore, the cost per share is $5.00. When considering the total value of shares issued during the incorporation, since only 1,000 shares were issued and Rob paid $5,000 for all of them, the total value of the shares issued is $5,000.
Regarding Babble, Inc., to determine what an investor would pay for a share of stock, one must look at the total projected profits and how they are distributed to shareholders. Since profits are expected to be $15 million, $20 million, and $25 million over the next two years and will be paid out as dividends, an investor would look at the present value of these future dividends to decide a fair price for a share. As the company is selling 200 shares of stock, you would divide the present value of future dividends by the number of shares to find the price per share an investor might be willing to pay.