CORPORATE FINANCE CUSTOM W/CONNECT >BI
11th Edition
ISBN: 9781307036633
Author: Ross
Publisher: MCG/CREATE
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 24, Problem 5QP
Summary Introduction
To determine: Warrant value.
Warrant value:
The difference between value of the stock and exercise price is called the warrant value. Warrant is issued by the company which increases the number of the shares.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Jacobs Company has warrants outstanding, which are selling at a $2.50 premium above intrinsic value. Each warrant allows its owner to purchase one share of common stock at $26. If the common stock currently sells for $30, what is the warrant price?
A. $6.50
B. $6.40
C. $6.75
D. $7.25
Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1
share of stock per warrant at a price of $25.
a. Calculate the exercise value of a warrant at each of the following common stock
prices: (1) $20, (2) $25, (3) $30, (4) $100. (Hint: A warrant’s exercise value is the
difference between the stock price and the purchase price specified by the warrant
if the warrant were to be exercised.)
b. Assume the firm’s stock now sells for $20 per share. The company wants to sell
some 20-year, $1,000 par value bonds with interest paid annually. Each bond will
have attached 50 warrants, each exercisable into 1 share of stock at an exercise
price of $25. The firm’s straight bonds yield 12%. Assume that each warrant will
have a market value of $3 when the stock sells at $20. What coupon interest rate,
and dollar coupon, must the company set on the bonds with warrants if they are
to clear the market? (Hint: The convertible bond should have an initial price
of $1,000.)
Maese Industries Inc. has warrants outstanding that permit the holders to purchase 1 share of stock per warrant at a price of $29.
Calculate the exercise value of a warrant at each of the following common stock prices: (1) $20, (2) $25, (3) $30, (4) $100. (Hint: A warrant's exercise value is the difference between the stock price and the purchase price specified by the warrant if the warrant were to be exercised.) If your answer is zero, enter "0". Round your answers to the nearest dollar.
(1)
$20
$
(2)
$25
$
(3)
$30
$
(4)
$100
$
Chapter 24 Solutions
CORPORATE FINANCE CUSTOM W/CONNECT >BI
Ch. 24 - Prob. 1CQCh. 24 - Prob. 2CQCh. 24 - Convertible Bonds and Stock Volatility Suppose you...Ch. 24 - Convertible Bond Value What happens to the price...Ch. 24 - Prob. 5CQCh. 24 - Warrants and Convertibles What is wrong with the...Ch. 24 - Warrants and Convertibles Why do firms issue...Ch. 24 - Convertible Bonds Why will convertible bonds not...Ch. 24 - Convertible Bonds When should a firm force...Ch. 24 - Conversion Price A convertible bond with a par...
Ch. 24 - Conversion Ratio A convertible bond with a par...Ch. 24 - Conversion Premium Eckely, Inc., recently issued...Ch. 24 - Convertible Bonds Hannon Home Products, Inc.,...Ch. 24 - Prob. 5QPCh. 24 - Convertible Bond Value An analyst has recently...Ch. 24 - Convertible Bond Value Sportime Fitness Center,...Ch. 24 - Convertible Bonds You own a callable, convertible...Ch. 24 - Prob. 9QPCh. 24 - Convertible Bonds Vital Silence Corp. bas just...Ch. 24 - Convertible Bonds Rob Stevens is the chief...Ch. 24 - Prob. 12QPCh. 24 - Prob. 13QPCh. 24 - Prob. 14QPCh. 24 - Warrant Value Superior Clamps, Inc., has a capital...Ch. 24 - Prob. 16QPCh. 24 - SS AIR'S CONVERTIBLE BOND Chris Guthrie was...Ch. 24 - What is the floor value of the SS Air convertible...Ch. 24 - What is the conversion ratio of the bond?Ch. 24 - What is the conversion premium of the bond?Ch. 24 - What is the value of the option?Ch. 24 - Is there anything wrong with Todds argument that...Ch. 24 - Is there anything wrong with Marks argument that a...Ch. 24 - Prob. 8MCCh. 24 - During the debate, a question comes up concerning...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Potter Industries Inc. has warrants outstanding that permit its holders to purchase 1 share of stock per warrant at a price of $18. (Refer to Chapter 18 for parts a, b, and c.) a. Calculate the exercise value of Potter’s warrants if the common stock sells at each of the following prices: $18, $21, $25, and $70. b. At what approximate price do you think the warrants would sell under each condition indicated in part a? What premium is implied in your price? Your answer will be a guess, but your prices and premiums should bear reasonable relationships to each other. c. How would each of the following factors affect your estimates of the warrants’ prices and premiums in part b? The life of the warrant is lengthened. The expected variability (sp) in the stock’s price decreases. The expected growth rate in the stock’s EPS increases. The company announces the following change in dividend policy: Whereas it formerly paid no dividends, henceforth it will pay out all earnings as dividends. d.…arrow_forwardMaese Industries Inc. has warrants outstanding that permit the holders topurchase 1 share of stock per warrant at a price of $25.a. Calculate the exercise value of the firm’s warrants if the common sellsat each of the following prices: (1) $20, (2) $25, (3) $30, (4) $100. (Hint:A warrant’s exercise value is the difference between the stock price andthe purchase price specified by the warrant if the warrant were to beexercised.)arrow_forwardAn investor has P1,000 that she is interested in investing i Huan Inc. stock, which is currently selling for P50 per share.Huan Inc.'s warrants are selling for P12 per warrant. Each warrant entitles the holder to purchase three shares of Huan Inc.'s common stock for P47 per share. The warrant premium is Format: 1arrow_forward
- Sen Corporation warrants carry the right to buy 10 shares of Sen common stock at $11.00 per share. The common stock has a current market price of $11.75 per share. The intrinsic or minimum value of one Sen warrant is ________. A. $7.50 B. $0 C. $1.50 D. $15arrow_forwardAn investor has P1,000 that she is interested in investing in National Inc. stock, which is currently selling for P50 per share. National Inc.'s warrants are selling for P12 per warrant. Each warrant entitles the holder to purchase three shares of National Inc.'s common stock for P47 per share. The warrant premium isarrow_forward31. On January 1, 2021, a company issued P2,000,000, 16% bonds at 102. Each P1,000 bonds has one detachable warrant that allows the holder to purchase ten shares of P50 par value stock at P70 per share. The bonds would have been sold at 99 without the warrants. In 2022, 800 of the warrants were exercised. How much is the credit to share premium when the warrants were exercised? 32. On December 31, 2019, A Company issued 5,000 of 8% 10-year P1,000 face value bonds with detachable warrants at 110. Each bond carried a detachable warrant for 10 ordinary shares of P100 par value at a specified option price of P120. Immediately after issuance, the market value of the bonds without warrants was P4,800,000 and the market value of the warrants was P1,200,000. What is the share premium from the subsequent exercise of all share warrants? 33. The following information was provided by a company regarding its currently maturing obligations as of December 31, 2021: On December 31, 2021, the…arrow_forward
- Acme stock price is currently $10 per share. Acme's warrants have a price of $7 per warrant. Each warrant enables the holder to purchase three shares of Acme's common stock for $8 per share. What is the speculative premium on the warrant? and Suppose that an investor buys a 100-share call option for $250. It has an exercise price of $60. The underlying price per share of the stock at expiration is $66. What then is the amount of profit or loss, ignoring brokerage fees?arrow_forwardOn january 1, 2022, a company issued P2,000,000, 16% bonds at 102. Each P1,000 bonds has one detachable warrant that allows the holder to purchase ten shares of P50 par value stock at P70 per share. The bonds would have been sold at 99 without the warrants. In 2023, 800 warrants were exercised. How much is the credit to share premium when the warrants were exercised?arrow_forwardLakeshore Gelato issues 2, 500 shares of $30 par preferred stock with detachable warrants for $215, 000 on January 1, 20Y1. Each share of preferred stock is issued with 10 detachable warrants. Each warrant entitles the holder to purchase one share of common stock for $25. The warrants expire in 2 years. The fair market value of the preferred stock is $145, 000 on January 1, 20Y1, and the warrants sell for $3 per warrant. On July 1, 20Y2, the warrants are exercised to purchase common stock (with a par value of $10 per share). The exercise price is $25 per share. Record the Lakeshore Gelato Entries (rounded to the penny) for: (1) Issuance (round the aggregate value percentage to two decimals ie 75.45%) (2) Exercise of Warrantsarrow_forward
- A company issues 1,000 bonds, each with a face value of $1,000, for $1.1 million. Each bond has a detachable warrant that allows the holder to purchase common stock for $20 per share. The market value of the bonds without the warrants is $950,000. The fair market value of the warrants is $50,000.How much should the company record as the value of the warrants?arrow_forward27. On December 31, 2020, Nyza Company issued 200,000 shares of P100 par, 10% cumulative preferred stock for P25,000,000. One detachable warrant was attached to each preferred share issued. Each warrant gives the holder the right to purchase one common share with a P50 par value for P100. The market value of the warrant after the preferred stock was issued was P15. The warrants expire on December 31, 2021. On July 1, 2021, all of the warrants were exercised. On this date, the market prices were P120 for the common and P20 for the warrant. With the issue price allocated to preferred stock on December 31, 2020, how much is the share premium – preferred stocks?arrow_forwardOn march 1 2023, Star corporation issue P500,000 of 10%, 7 year bonds with 1 taxable warrants attached to each P1,000 bond. each warrants provides for the right to purchase 20 shares of P15 ordinary shares for 20 each. The market value of the ordinary shares was P25 per share on july 1, 2023. the detachable warrants market price was P70 per warrant and the arket value of the bond without the warrants attached is P104. The bond was sold at 107. How much is the Premium or Discount on the issuance of bonds? P20,000 How much is the warrants outstanding? P15,000 Show full solutionarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
- Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning