Diamond Drill Inc.has 150,000 shares and 15,000 warrants outstanding.A warrant holder can purchase a new share of equity for ﬁve warrants and €5.00 per warrant.The equity is currently
Selling for €27 per share.If the warrants are all exercised immediately, what would be the market
Price of the equity?

Question

Quizplus · Accepted Answer

Since each warrant can be used to purchase one new share for €5.00, 15,000 warrants can be exercised to purchase 15,000/5 = 3,000 new shares. After the warrants are exercised, the total number of shares outstanding will be 150,000 + 3,000 = 153,000. The total value of equity after the warrants are exercised is (150,000 x €27) + (3,000 x €5) = €4,095,000. Dividing this by the new number of shares outstanding (153,000), we get a market price of €26.96 per share, which is closest to choice C.