Question

At December 31, 2019, Marigold Corporation had the following stock outstanding. 10% cumulative preferred stock, $100 par, 109,415 shares Common stock. $5 par, 4,029,120 shares $10,941,500 20,145,600 During 2020, Marigold did not issue any additional common stock. The following also occurred during 2020. Income from continuing operations before taxes $22,864,700 Discontinued operations (loss before taxes) $3,429,100 Preferred dividends declared $1,094,150 Common dividends declared $2,185,000 Effective tax rate 35 % Compute earnings per share data as it should appear in the 2020 income statement of Marigold Corporation (Round answers to 2 decimal places, es. 1.48) Earnings Per Share Net Income /(Loss) 12633194 Income from Continuing Operations Discontinued Operations

Answer 1

An investor would calculate the present value (PV) of Babble, Inc.'s expected future profits and divide by the number of shares to determine the price per share. In this case, if the PV of total profits was $51.3 million and there were 200 shares, the price per share would be about $256,500.

Step-by-step explanation:

When considering an investment in Babble, Inc., a company that offers speaking lessons and plans to disband in two years, the price an investor is willing to pay for a share of stock can be determined through present value calculations of dividend payouts.

Given the expected profits of $15 million immediately, $20 million one year from now, and $25 million two years from now, these amounts must be discounted to their present value (PDV) using an appropriate discount rate — perhaps the market rate of interest that investors typically seek. Since each profit amount occurs at a different time, a separate PDV calculation is needed for each amount.

After calculating the PDV for each future profit, add them to determine the total PDV of the profits. Finally, the total PDV is divided by the number of available shares, 200 in this case, to find the estimated price per share.

Assuming an example PDV of total profits is $51.3 million, dividing by 200 shares yields a price per share of approximately $256,500.