How many shares of stock and how many warrants

Assignment Help Finance Basics
Reference no: EM131110130

Susan Michaels is evaluating the Burton Tool Company's common stock and warrants to choose the better investment. The firm's stock is currently selling for $50 per share; its warrants to purchase three shares of common stock at $45 per share are selling for $20. Ignoring transaction costs, Ms. Michaels has $8,000 to invest. She is quite optimistic with respect to Burton because she has certain "inside information" about the firm's prospects with respect to a large government contract.

a. How many shares of stock and how many warrants can Ms. Michaels purchase?

b. Suppose Ms. Michaels purchased the stock, held it 1 year, and then sold it for $60 per share. What total gain would she realize, ignoring brokerage fees and taxes?

c. Suppose Ms. Michaels purchased warrants and held them for 1 year and the market price of the stock increased to $60 per share. Ignoring brokerage fees and taxes, what would be her total gain if the market value of the warrants increased to $45 and she sold out?

d. What benefit, if any, would the warrants provide? Are there any differences in the risk of these two alternative investments? Explain.

Reference no: EM131110130

Questions Cloud

How many gates are required to implement the given equations : How many gates are required to implement the following Boolean equations? Which Boolean law is used to transform each of the following equations?
Explain who is liable on the contract : Please explain who is liable on the contract to purchase purchase 100 gallons of milk from Jim (e.g., Nora, Henry, both). If you believe both Nora and Henry might be liable
Would bee liability insurance pay in this situation : Ms. Bumble Bee operates a florist shop. During a particularly busy day, she allowed one of her employees, Would Bee's liability insurance pay in this situation
What defense might be raised in this case explain : In your initial post, address the following: What defense might be raised in this case? Explain. Should that defense be successful? Explain. See Nalwa v. Cedar Fair, 55 Cal. 4Th 1148
How many shares of stock and how many warrants : How many shares of stock and how many warrants can Ms. Michaels purchase? Suppose Ms. Michaels purchased the stock, held it 1 year, and then sold it for $60 per share. What total gain would she realize, ignoring brokerage fees and taxes?
What is the theoretical basis for requiring lessees : How should Perriman account for the gain on the sale portion of the sale-leaseback transaction during the first year of the lease? Why?(AICPA adapted)
Calculate the theoretical warrant value : For each of the common stock prices given, calculate the theoretical warrant value. Graph the theoretical and market values of the warrant on a set of axes with per share common stock price on the x axis and warrant value on the y axis.
Database design and sql queries : In assignment 1, you have already started the process of designing a database for the Beauty Salon mini-case (enclosed again below), mainly in the phase of conceptual database design, and a draft ER diagram has been created for this purpose. Here you..
What ethical issue is at stake : Should the controller's argument be accepted if she does not really know much about copier technology? Would it make a difference if the controller were knowledgeable about the pace of change in copier technology?

Reviews

Write a Review

Finance Basics Questions & Answers

  Describe a small business

Describe a small business you could see yourself owning and the strategy you would follow for financing working capital. Explain why your strategy would make sense for your business and location.

  What is the projects rate of return should the company

the plush toy co. is considering a new toy that will produce the following cash flows. what is the projects rate of

  Which strategy results in the highest firm value today

a) Which strategy results in the highest firm value today?Your company currently has debt of $50M due next year. Suppose the management team will choose the strategy that leads to the highest equity value today.

  All market imperfections except personal taxes on dividends

10. Payout Policy. Constancash, Inc. is expected to pay dividends of $2.20 per year for the next ten years, with the first cash flow occurring immediately. (That is, there will be a total of eleven cash flows over the next ten years.) The fair rate o..

  How can a straddle be created? buy one call and one put

How can a straddle be created? Buy one call and one put with the same strike price and same expiration date Buy one call and one put with different strike prices and same expiration date Buy one call and two puts with the same strike price and exp..

  What amount must she deposit annually to be able to make

If she starts making these deposits on her 33th birthday and continues to make deposits until she is 65 (the last deposit will be on her 65th birthday), what amount must she deposit annually to be able to make the desired withdrawals at retirement..

  Differences and similarities of common stocks and bonds

Contrast the differences/similarities of common stocks and bonds. Explain how they would be used in the corporate environment.

  Whats going to be the companys new stock price

What impact will this utilization of this debt have on the value of the company - whats going to be the company's EPS after the recapitalization?

  Search the internet for an image from a used as part of an

search the internet for an image from a used as part of an advertisement or published with a written work. post a link

  What is the cost of new equity for this company

What is the cost of new equity for this company, taking into account flotation costs?

  Place the name block in the upper left corner of the page

Calculations: On merged cells, use only the left side for use in formulas. If your formulas span two columns, you may add some numbers twice.

  Question regarding the unemployment compensation

A previous poll found that "433 of the 1548 randomly-selected adults questioned felt that unemployment compensation should be extended an additional six months while the country is in its current economic downturn

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd