contestada

Lake Norman Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 2,000, $1,000 bonds with the warrants attached was $205,000. The market price of the Lake Norman bonds without the warrants was $180,000, and the market price of the warrants without the bonds was $20,000. What amount should be allocated to the warrants?
a.$24,000
b.$20,000
c.$20,500
d.$25,000

Respuesta :

Answer:

Option (C) is correct.

Explanation:

Given that,

Share of common stock (par value $5) = $20 (at a time when the stock was selling for $32)

Price paid for 2,000, $1,000 bonds with the warrants attached = $205,000

Market price of the Lake = $180,000

Market price of the warrants = $20,000

The amount allocated to the warrants should be:

= [Market price of warrants ÷ (Market price of warrants + Market price of Lake)] × Price paid

= [$20,000 ÷ ($20,000 + $180,000)] × $205,000

= $20,500