Westover Industries has 60,000 shares outstanding.Each share has one-third of a warrant attached.One warrant plus $25 can be exchanged for one new share of stock.The stock is currently selling for $27 per share.All else held constant,what will the stock price be if all the warrants are exercised?

Question

Quizplus · Accepted Answer

Since each share has one-third of a warrant and there are 60,000 shares outstanding, there are 20,000 warrants outstanding (60,000 shares x 1/3 warrant per share = 20,000 warrants).
To exercise all the warrants, investors would need to pay $25 x 20,000 = $500,000. This would allow them to buy an additional 20,000 shares.
The new total number of shares outstanding would be 80,000 (60,000 original shares + 20,000 newly issued shares from warrants).
The total value of the company would be the value of the original shares plus the value of the newly issued shares from warrants: $27 x 60,000 + $25 x 20,000 = $1,620,000 + $500,000 = $2,120,000.
The new stock price would be the total value of the company divided by the new total number of shares outstanding: $2,120,000 ÷ 80,000 = $26.50.

Westover Industries Has 60,000 Shares Outstanding