Question
A company is considering offering 8 million at-the-money one year call option warrants to another company they are looking to acquire. The Black-Scholes equation was
A company is considering offering 8 million at-the-money one year call option warrants to another company they are looking to acquire. The Black-Scholes equation was used to find the value of a normal stock call option with the same parameters as the warrants that will be issued; the option value was $22.50. The company currently has 32 million shares outstanding. Option exercises will be handled by issuing more shares. A.) Estimate the cost to the company of the warrant issue. B.) If the market perceives no benefits from the options, how much will the stock price fall after the warrants are issued and exercised?
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