Question

Crane Company offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $30). The price paid for 700, $1,000 bonds with the warrants attached was $810000. The market price of the Crane bonds without the warrants was $710000, and the market price of the warrants without the bonds was $71800. What amount should be allocated to the warrants

Answer 1

$ 74,389.87

Step-by-step explanation:

It is given that :

The cost of 700, $1000 bonds with warrant attached to the bond = $810,000

The cost of Crane bonds with warrant = $710,000

The cost of market price of the warrants without bonds = $71,800

Therefore, the amount should be allocated to the warrants :

`$=(\$71,800)/(\$71,800+\$710,000)* \$ 810,000$`

`$=(\$71,800)/(\$781,800)* \$ 810,000$`

= $ 74,389.87