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 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 these.

Question

Quizplus · Accepted Answer

The exercise of warrants creates new shares, which increases the total number of shares outstanding. This can potentially reduce the individual share value as the value of the company is now being spread across more shares. Therefore, the best choice is B. Choices A and D are incorrect because they suggest that the exercise of warrants does not affect share value, which is not true. Choice C is incorrect because it suggests that the exercise of warrants is similar to options, which is not true as options do not create new shares.

The Exercise of Warrants Creates New Shares Which