Question

On January 1, Sheridan company had 56,100 shares of no par common stock issued and outstanding. the stock has a stated value of $4 per share. during the year, the following transactions occurred.

April 1 - Issued 9,700 additional shares of common stock for $11 per share.

June 15 - declared a cash dividend of $1.40 per share to stockholders of record on June 30.

July 10 - paid the $1.40 cash dividend.

Dec 1 - Issued 4,100 additional shares of common stock for $12 per share.

Dec 15 - declared a cash dividend on outstanding shares of $1.50 per share to stockholders of record on Dec 31.

Answer 1

Sheridan company had 69,900 shares of common stock issued and outstanding at the end of the year.

Step-by-step explanation:

Common stock represents ownership in a corporation and grants shareholders voting rights in corporate decisions. It entitles holders to a share of the company's profits through dividends and provides a residual claim on assets in case of liquidation. Common stockholders bear higher risk but may benefit from capital appreciation. To determine the number of shares of common stock Sheridan company had at the end of the year, we need to account for the transactions that occurred throughout the year.

• On April 1, the company issued 9,700 additional shares of common stock, bringing the total shares to 56,100 + 9,700 = 65,800 shares.
• On December 1, another 4,100 shares of common stock were issued, increasing the total to 65,800 + 4,100 = 69,900 shares.

Therefore, at the end of the year, Sheridan company had 69,900 shares of common stock issued and outstanding.

Answer 2

An investor would be willing to pay approximately $269,200 per share of Babble Inc., assuming a required rate of return of 10% and the present value of future dividends is the primary method of valuation given that the company will be disbanded in two years.

Step-by-step explanation:

Valuing Shares of Babble, Inc.

To determine the price an investor would pay for a share of Babble, Inc., one needs to consider the present value of the future dividends since the company will be disbanded in two years. The present value of the dividends can be calculated using the formula for the present value of annuities:
Present Value (PV) = C / (1+r)^t, where C is the cash dividend, r is the discount rate (expected rate of return), and t is the time period.

Assuming an investor would require a 10% rate of return (just as an example), you would calculate the present value (PV) of each dividend and sum them to get the total value of all dividends. This total value would be divided by the number of shares to determine the price per share:

Present value of the $15 million dividend paid immediately: $15 million / (1+0.10)^0 = $15 million

Present value of the $20 million dividend in one year: $20 million / (1+0.10)^1 = $18.18 million

Present value of the $25 million dividend in two years: $25 million / (1+0.10)^2 = $20.66 million

Adding these up gives a total present value of $53.84 million. Divided by the 200 outstanding shares, the price per share would be $269,200. Therefore, an investor would be willing to pay approximately $269,200 per share of Babble, Inc.