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.
-Refer to the above scenario.If the warrants are all exercised immediately, what would be the market price of the stock?
A)$22.78
B)$25.13
C)$26.96
D)$28.00
E)$29.00

Question

Quizplus · Accepted Answer

When all warrants are exercised, 15,000 warrants will convert into 3,000 new shares (15,000/5). The company will receive $75,000 (15,000 * $5). The new total shares will be 153,000 (150,000 + 3,000). The new market capitalization will be $4,125,000 (150,000 * $27 + $75,000). The new stock price will be $26.96 ($4,125,000 / 153,000).