Diamond Drill Inc. has 150,000 shares and 15,000 warrants outstanding. A warrant holder can purchase a new share of stock for five warrants and $5.00 per warrant. The stock is currently selling for $27 per share. A firm has 100 shares of stock and 40 warrants outstanding. The warrants are about to expire,and all of them will be exercised. The market value of the firm's assets is $2,000,and the firm has no debt. Each warrant gives the owner the right to buy 2 shares at $15 per share. What is the price per share of the stock?

Question

Quizplus · Accepted Answer

When all warrants are exercised, 40 warrants will convert into 80 new shares (since each warrant allows the purchase of 2 shares). The firm will receive $15 per share for these 80 shares, totaling $1,200. The new total number of shares will be 180 (100 existing + 80 new). The total market value of the firm will be $3,200 ($2,000 existing + $1,200 from warrants). The price per share will be $3,200 / 180 = $17.78.