Answer to Question #126724 in Finance for raphael

Question

b) Your company wishes to raise a new debt capital on stock market. Your managing director has heard of warrants and traded options and suggests that an issue of debt, accompanied by either attached warrants or traded options might be attractive to investors and have benefits for your company.
Required:
Discuss whether you consider your managing director’s suggestions to be useful.

Answer 1

The mangers descion is usefull because warrants and traded options are deb capital finance options that gives the holders the right but not obligation to purchase a share of stock directly from the company at a fixed price for a pre-defined time period.These options, helps to increase the company’s capital. Therefore, they are a good option for the start-ups, who can attach warrants and traded options to make their bonds and shares more attractive. By issuing warrants and traded options the company secures a future source of capital. It is easier to convince an investor to buy a warrant and traded optiins than to purchase more shares.