Question 6.RQ.1: What are share warrants and what are the benefits to a busin...

Financial Management for Decision Makers

What are share warrants and what are the benefits to a business of issuing share warrants?

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

Share warrants may be particularly useful for young, expanding businesses wishing to attract new investors. They can help provide a ‘sweetener’ for the issue of loan notes. Attaching warrants may make it possible to agree a lower rate of interest and/or less restrictive loan covenants. If the business is successful, the warrants will provide a further source of finance. Investors will exercise their option to acquire shares if the market price of the shares exceeds the exercise price of the warrant. However, this will have the effect of diluting the control of existing shareholders.

Related Answered Questions

Question: 6.SE.5

Cybele Technology Ltd is a software business that is owned and managed by two computer software specialists. Although sales have remained stable at £4 million per year in recent years, the level of trade receivables has increased significantly. A recent financial report submitted to the owners ...

Verified Answer:

Cybele Technology Ltd (a)

Cost...

Question: 6.SE.6

Telford Engineers plc, a medium-sized manufacturer of automobile components, has decided to modernise its factory by introducing a number of robots. These will cost £20 million and will reduce operating costs by £6 million a year for their estimated useful life of 10 years starting next year ...

Verified Answer:

Telford Engineers plc (a)

Proj...

Question: 6.SE.1

Answer all parts below.Required:Provide reasons why a business may decide to:(a) Lease rather than buy an asset which is to be held for long-term use.(b) Use retained profit to finance growth rather than issue new shares.(c) Repay long-term loan capital earlier than the specified repayment date. ...

Verified Answer:

Financing issues (a)

This topi...

Question: 6.S-TQ.1

Helsim Ltd is a wholesaler and distributor of electrical components. The most recent draft financial statements of the business revealed the following: ...

Verified Answer:

Helsim Ltd (a) The liquidity position may be asses...

Question: 6.RQ.4

Distinguish between invoice discounting and debt factoring. ...

Verified Answer:

Invoice discounting is a service offered to busine...

Question: 6.RQ.3

What are the benefits of an interest swap agreement and how does it work? ...

Verified Answer:

A swap agreement can be a useful hedging device. A...

Question: 6.RQ.2

‘Convertible loan notes are really a form of delayed equity.’ Do you agree? Discuss. ...

Verified Answer:

Convertible loan notes are not necessarily a form ...

Question: 6.13

Why shouldn’t the managers simply release any inside information to the market to allow the share price to rise and so make it possible to issue shares at a fair price? ...

Verified Answer:

There are at least two reasons why this may not be...

Question: 6.12

Are retained profits a free source of finance for the business? ...

Verified Answer:

It is tempting to think that retained profits are ...

Question: 6.11

Some businesses may take up a less cautious financing position than that shown in Figure 6.9 and others may take up a more cautious one. How would the diagram differ under each of these options? ...

Verified Answer:

A less cautious position would mean relying on sho...