a) 1. To raise new equity capital. Because of preemptive rights, stockholders can maintain the percentage ownership interest in the company by buying new shares on a pro rata basis before they are issued to the public. It prevents existing stockholders from dilution in value or control. The warrants indicate how many shares can be bought. 2. The objective of issuing warrant to certain employees is that it can appeal them to have interests in management and let them join the growth of company. So these key employees will have passion on operating the company. 3. The warrants issued for purchasers of the corporation’s bonds are used to keep their purchasing power. Also, they permit the sale of bonds at a lower interest cost. b.
1. The price specified in warrants would be below the market price to assure that they will be exercised. For the purpose of raising capital, the length of time over which the warrants can be exercised is short, 60 days. 2. The warrants offered to key employees should at or above the market price, because the stock-option plan should be attractive to these employees. 3. I think the price might be below, equal, or above the market price. The length of time would be longer than the other two kinds of warrants. The length of time will increase as long as the exercise price increases. c.
1. Include a description of the stock being offered for sale; the option price; the time period during which the rights may be exercised; and the number of rights needed purchase a new share. 2. Include: the basic EPS, the number of shares under option, the weighted average option prices for these categories, the weighted average fair value of options granted during the year. 3. Include: the price which they can be exercised, the length of time, and the total number of shares that can be purchased by the bondholders.
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