The stock-purchase warrant permits the firm to raise additional funds at some point in the future by selling common stock and thereby shifting the firm's capital structure to a less highly levered position.

Question

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A stock-purchase warrant gives the holder the right to buy shares of common stock at a specific price, usually above the current market price, for a certain period of time. By exercising this warrant, the firm can raise additional funds by selling common stock. As the firm issues more equity, the proportion of debt in its capital structure decreases, resulting in a less highly levered position. Therefore, the statement is true.

The Stock-Purchase Warrant Permits the Firm to Raise Additional Funds