Question

Lefty Consultants currently has 300,000 shares of common outstanding. Firm value net of debt is $3,450,000. The firm has warrants outstanding with an exercise price of $10. How many warrants must the firm have issued if the gain from exercising a single warrant is $1.25

Answer 1

Answer: 60000

Step-by-step explanation:

We will calculate the share price post warrant issues which will be:

= $10 + $1.25

= $11.25

Then, let the number of warrant issues is represented by x. Slotting this into the formula for the share price post warrant issued will go thus:

11.25 = (3450000 + 10×x) / (300000 + X)

3375000 + 11.25x = 3450000 + 10x

Collect like terms

11.25x - 10x = 3450000 - 3375000

1.25x = 75000

x = 75000/1.25

x = 60,000

Therefore, the number of warrant issued is 60,000