WARRANTS Potter Industries Inc. has warrants outstanding that permit its holders purchase 1 share of stock per warrant at a price of $18. (Refer to Chapter 18 for par a, b, and c.) a. Calculate the exercise value of Potter's warrants if the common stock sells at each of the following prices: $18, $21, $25, and $70. b. At what approximate price do you think the warrants would sell under each condition indicated in part a? What premium is implied in your price? Your answer will be a guess, but your prices and premiums should bear reasonable relationships to each other. c. How would each of the following factors affect your estimates of the warrants' prices and premiums in part b? 1. The life of the warrant is lengthened. 2. The expected variability (o,) in the stock's price decreases. 3. The expected growth rate in the stock's EPS increases.

WARRANTS Potter Industries Inc. has warrants outstanding that permit its holders purchase 1 share of stock per warrant at a price of $18. (Refer to Chapter 18 for par a, b, and c.) a. Calculate the exercise value of Potter's warrants if the common stock sells at each of the following prices: $18, $21, $25, and $70. b. At what approximate price do you think the warrants would sell under each condition indicated in part a? What premium is implied in your price? Your answer will be a guess, but your prices and premiums should bear reasonable relationships to each other. c. How would each of the following factors affect your estimates of the warrants' prices and premiums in part b? 1. The life of the warrant is lengthened. 2. The expected variability (o,) in the stock's price decreases. 3. The expected growth rate in the stock's EPS increases.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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