The Gallery has 150,000 shares and 150,000 warrants outstanding.One new share can be purchased for every 10 warrants plus $25 per new share.The stock is currently selling for $28 per share.If all the warrants are exercised immediately,what would be the adjusted market price of the stock?

Question

Quizplus · Accepted Answer

The total number of shares after all warrants are exercised is calculated by adding the original 150,000 shares to the new shares obtained from exercising the 150,000 warrants. Since one new share can be purchased for every 10 warrants, this results in 150,000 / 10 = 15,000 new shares. Thus, the total number of shares becomes 150,000 + 15,000 = 165,000 shares.The total amount of money raised from exercising the warrants is 15,000 new shares * $25 = $375,000.The total market value of the stock before the exercise of the warrants is 150,000 shares * $28 = $4,200,000.The adjusted market value after exercising the warrants is the original market value plus the money raised from the warrants, which equals $4,200,000 + $375,000 = $4,575,000.The adjusted market price of the stock is then the adjusted market value divided by the new total number of shares, which is $4,575,000 / 165,000 shares = $27.73 per share.

The Gallery Has 150,000 Shares and 150,000 Warrants Outstanding