Outer Wear has 12,000 shares of stock outstanding. Each share has a .5 warrant attached. These...
Outer Wear has 12,000 shares of stock outstanding. Each share has a .5 warrant attached. These warrants expire today. The market value of the firm's assets net of its debt is $192,000. One new share can be obtained for one warrant plus $18. Assuming all else held constant, what would you expect the market price per share to be tomorrow morning when the stock market opens?
Homework Answers
Ans.
Market value of firm's asset (net of debt) is Market value firm's equity
Market value of equity =$192,000
Number of shares outstanding = 12,000
Market price of old shares = 192000 / 12000 = $16
Price per warrants = stock price / number of warrants = 16/ 5
Price per warrant = $3.2
New shares can be obtained for one warrant + $18
New share price = price per warrant + 18
= 3.2 + 18
New share price expected tomorrow morning before market opens= $21.2
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