Final answer:
To calculate the P/E ratio for Larabee Company, you divide the stock price by the EPS, giving us a P/E ratio of approximately 76.5. For Babble, Inc., investors would determine what to pay for a share by calculating the present value of future profits and dividing by the number of shares.
Step-by-step explanation:
The question asks about calculating the Price/Earnings ratio of Larabee Company. To calculate the P/E ratio, you divide the current stock price by the earnings per share (EPS). The EPS is determined by dividing the total earnings ($70 million) by the number of outstanding shares (206 million). So, EPS for Larabee Company is $70,000,000 / 206,000,000 = $0.3398 per share. Then, P/E ratio = $26 / $0.3398 ≈ 76.51. Therefore, the P/E ratio for Larabee Company is closest to 76.5.
In the hypothetical case of Babble, Inc., an investor would need to calculate the present value of the profit distributions to determine what they'd be willing to pay for a share of stock. These present values (PV) would be added together to find the total available for distribution and then divided by the 200 shares to determine the price per share. Assuming there is a certain required rate of return (which was not provided), and using present value discounting, the price per share would be high given the substantial profit payouts.