Final answer:
A Canadian shareholder must report the full amount of $200 in dividend income received. In investing scenarios like Babble, Inc., dividends represent a shareholder's portion of a company's profits and help determine the value of a share of stock.
Step-by-step explanation:
A Canadian shareholder who receives $200 in dividend income must report the full $200 as income. In the context of investing in a company like Babble, Inc., understanding the concept of dividends is crucial. When a firm like Babble, Inc. decides to issue stock, they are offering a piece of ownership in the company. Investors who purchase this stock are often entitled to a portion of the company's profits in the form of dividends. For instance, if Babble, Inc. is selling 200 shares of stock and projecting profits of $15 million, $20 million, and $25 million over the next two years, the value of a share of stock will largely depend on the expected dividends.
The profits are being paid out as dividends, and an investor would calculate the present value of those future dividends to determine what they would pay for a share today. Keeping in mind that investors seek a rate of return, they would consider both the potential dividends and any possible capital gains when deciding on the price they're willing to pay for the stock.