When warrants are used as "sweeteners" by a new firm, the firm is essentially allowing creditors to
A) vote along with common stockholders.
B) share in the possible future success of the firm.
C) protect their interest.
D) receive extra income.

Question

Quizplus · Accepted Answer

When warrants are used as sweeteners, the new firm is essentially allowing creditors to share in the possible future success of the firm. The warrant gives the creditor the option to buy additional shares of stock at a predetermined price, which can result in increased potential profit if the company's stock price rises. This sweetener is designed to make the debt more attractive to investors, ultimately benefiting the new firm.

When Warrants Are Used as "Sweeteners" by a New Firm