The exercise of warrants creates new shares which:
A)increases the total number of shares but does not affect share value.
B)increases the total number of shares which can reduce an individual's share value.
C)does not change the number of shares outstanding similar to options.
D)increases share value because cash is paid into the ﬁrm at the time of warrant exercise.
E)None of the above.

Question

Quizplus · Accepted Answer

The exercise of warrants creates new shares, therefore increasing the total number of shares outstanding, which can dilute the value of an individual's shares. This is similar to stock options, where the exercise also creates new shares. Choice A is incorrect because the increase in shares can affect share value through dilution. Choice C is incorrect because new shares are created. Choice D is incorrect because the payment of cash does not necessarily increase share value.

The Exercise of Warrants Creates New Shares Which