Final answer:
The price per share for Babble, Inc. can be determined by discounting the future profits to the present value using a 15% interest rate and then dividing this total present value by the number of shares, resulting in roughly $256,500 per share.
Step-by-step explanation:
To calculate the price per share that an investor might pay for a share of Babble, Inc., we would need to find the present value (PDV) of the expected profits. Assuming a 15% interest rate, we would discount the future profits of $15 million, $20 million, and $25 million respectively to their present values. These amounts would then be summed and divided by the number of shares to find the price per share.
For instance, using appropriate present value calculations, the profits at each time period are discounted back to their present worth taking into account the 15% interest rate. Next, all present values are added to determine the total present value for the dividend payouts. Finally, dividing this total PDV by the 200 shares gives the value per share. If the PDV of all the profits is $51.3 million, then the calculation would be $51.3 million divided by 200 shares, resulting in a price per share of approximately $256,500.