Final answer:
To evaluate the share price an investor might pay for Babble, Inc., the present values of dividends for each year are computed and summed using a 15% discount rate. The total present value of $51.3 million is then divided by the number of shares (200), resulting in a price per share of approximately $256,500.
Step-by-step explanation:
To determine the current share price of Babble, Inc., we will calculate the present value (PV) of all expected future dividends (profits) using the formula:
PV = C /

where C is the cash flow in each period, r is the discount rate (interest rate), and t is the time in years to the cash flow.
The discount rate represents the opportunity cost of capital, which in this scenario is 15%. We will calculate the present value of the dividends for each of the three years separately, then sum them up to find the total present value of all the profits.
Year 0: $15 million received today has a present value of $15 million.
Year 1: $20 million / (1 + 0.15) = $17.39 million.
Year 2: $25 million /
= $18.9 million.
Adding up these figures, we get the total present value of the profits:
Total PV = $15 million + $17.39 million + $18.9 million = $51.3 million
This is then divided by the number of shares (200) to find the price per share:
Price per share = $51.3 million / 200 = $256,500.
Therefore, an investor should be willing to pay approximately $256,500 for a share of stock in Babble, Inc.