The capital structure of Springmaid Company is as follows:
The company has decided to raise additional capital by selling $100 million of 8% debentures with warrants attached. Each $1000 debenture will have 40 warrants attached, and each warrant will entitle the holder to purchase one share of common stock at $20. Assume that no other changes in the capital structure occur between now and the time the warrants are exercised. Determine how much total capital the company will raise as a result of the issuance of debentures with warrants attached (after exercise of the warrants).
A) $100 million
B) $ 80 million
C) $180 million
D) $20 million

Question

The capital structure of Springmaid Company is as follows: 
The company has decided to raise additional capital by selling $100 million of 8% debentures with warrants attached. Each $1000 debenture will have 40 warrants attached, and each warrant will entitle the holder to purchase one share of common stock at $20. Assume that no other changes in the capital structure occur between now and the time the warrants are exercised. Determine how much total capital the company will raise as a result of the issuance of debentures with warrants attached (after exercise of the warrants).
A) $100 million 
B) $ 80 million 
C) $180 million 
D) $20 million

Quizplus · Accepted Answer

Solution:
Total capital raised = $100 million + $20 * 4 million shares = $180 million

The Capital Structure of Springmaid Company Is as Follows