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. If all warrants are exercised,what will your fraction of ownership be if you owned 20,000 shares originally?

Question

Quizplus · Accepted Answer

There are a total of 15,000 warrants outstanding and each warrant allows the holder to purchase 1/5 = 0.2 shares. Therefore, all the warrants allow the holders to purchase a total of 0.2 x 15,000 = 3,000 shares. 
If all the warrants are exercised, the total number of shares outstanding will be 150,000 + 3,000 = 153,000 shares. 
If you originally owned 20,000 shares, then after all the warrants are exercised, your new ownership will be 20,000/153,000 = 0.1307 or 13.07%. 
Therefore, the answer is B.