A firm that issues warrants ____.
A) can expect to receive additional funds if the formula value of the warrant is zero at the expiration date
B) must pay the same per share dividend to the warrant holders as it pays to its stockholders
C) cannot issue convertible securities while the warrants are outstanding
D) can expect to receive additional funds if the formula value of the warrant is positive at the expiration date

Question

Quizplus · Accepted Answer

Warrants give their holders the right to purchase additional shares of a company's stock at a fixed price (strike price) for a set period of time. If the formula value of the warrant is positive at the expiration date, the holder will exercise the warrant and buy shares at the strike price, which will provide additional funds to the issuing firm. Choice A is incorrect because if the formula value of the warrant is zero at the expiration date, the holder has no incentive to exercise the warrant. Choice B is incorrect because warrants are not entitled to receive dividends. Choice C is incorrect because firms can issue convertible securities while warrants are outstanding.

A Firm That Issues Warrants ____