Explore BrainMass

Warrant Pricing

Warrants are like options in that they give the holder the right but not the obligation to purchase an underlying asset. In this case, warrants give their holders the right to purchase a fixed number of shares of common stock directly from the issuing company at a fixed exercise price up until the expiry date. Other than typically a longer maturity date, there are not many differences between warrants and options. 

Warrants are often described as "equity kickers" because they are frequently attached to privately placed bonds or preferred stock. Including warrants with the issue of other securities makes these securities more attractive. These extra perks allow the issuing company to pay less interest or less dividends. Warrants may also be used in private equity deals such as with privately placed bonds. In most cases, warrants attached to bonds or preferred stock are detacheable, and can be exercised or traded independently. 

The most important difference between warrants and call options is that when a warrant is exercised the issuing firm must issue new shares. As a result, each time a warrant is exercised the number of shares outstanding increases. This dilution effect has an impact on the value of the warrant, something call options avoid. We can compare the gains from exercising a call and a warrant in more general terms:

The following formula is generalized from the equation valuing the gain of the call. We recognize the value of one share of stock after a warrant is exercised is related to the value of the firm net of debt after the warrant is exercised. We find this value by adding the exercise price of the warrant (the amount the holder of the warrant will pay to the issuing firm to) the the existing value of the firm net of debt. 

We know of several models that allow us to value options such as calls and puts. What we want to know is if there is a way to use these same models, for example, the Black-Scholes model, to value a warrant? The formula below is rearranged from above and relates the gain on a warrant to the gain on the call. 

Looking at the above formula, we notice the gain on a warrant is equal to the gain on an identical call, adjusted by the factor #S/(#S + #W). This factor is the proportion or ratio of the number of shares in the firm without warrants to the number of shares after all the warrants have been exercised (that is, the number of outstanding shares + the number of warrants that will be exercised). We can then use the Black-Scholes Model to value the warrant, and adjust our solution by this factor. Note: The Black-Scholes model will give us the value of one call option; therefore, by using the adjusting factor, we still get the value of one warrant - even though we must account for the total number of warrants exercised. 

Creating a Strategic Marketing Plan

Complete final sections of Strategic Marketing Plan and create one seamless document including feedback and changes suggested throughout the course. Additional content to should include: Development of Pricing Strategies aligned with Strategic Focus Development of Distribution Strategies aligned with Strategic Focus Develop

Conducting Marketing Analysis

The Scenario & Challenge You have been hired as a marketing analyst for a national chain of pastry shops that is considering the establishment of a retail store in Southeast Shreveport, Louisiana (zip code 71105/71106). Your first assignment is to (1) conduct an investigation of the types of consumer groups that are drawn to

Analyzing several factors of a major corporation

1.Pick a major corporation and incorporate all of the items from the first three papers. 2.Identify the current CEO and describe tenure, compensation, background and organizational impact. Also identify the members and positions of the board of directors. 3.Analyze a recent real world business issue and decision that ha

Transfer pricing for Hawkeye enterprises

Hawkeye enterprises runs a chain of drive in ice cream stands in Iowa. Managers of all stands are told to act as if they owned the stand and are judged on their profit performance. Hawkeye rented an ice cream machine for the summer for $3600.00 to supply its stands with ice cream. Hawkeye is not allowed to sell ice cream to othe

Transfer Pricing in the Presence of Divisional Interdependencies

Prior to 1997, PepsiCo, a major soft drink company, had a restaurant division consisting of Kentucky Fried Chicken, Taco Bell, and Pizza Hut. The only cola beverage these restaurants served was Pepsi. Assume that the major reason PepsiCo owned fast food restaurants was an attempt to increase its share of the cola market. Under

Pricing in a Tight Market

Gargantuan Industries is a multi product company with several manufacturing plants. The Boise Plant manufactures and distributes two household cleaning and polishing compounds, standard and commercial, under the Super Clean label. The forecasted operating results for the first six months of the current year, when 100,000 cases o

Pricing Strategy for Quickbook

Develop a pricing strategy for Quickbooks software. - Discuss what factors will impact your pricing strategy. - What pricing method would you use for Quickbooks and why?

Pricing Strategies and Distribution Channels

Choose a company that has several product divisions, for example, GE, Proctor and Gamble, Ford Motor, or Aon to name a few. Choose 1 product from your chosen company and discuss its pricing strategies and distribution channels. Include whether or not you believe these strategies are effectively reaching and serving the p

Cost, Time and Metrics

1. While cost and time are critical components of projects, how would you define the quality of a project? Please explain in detail. 2. Which metric does a project manager have most control over: cost variance, schedule variance, cost performance index, and schedule performance index? Please explain in detail.

Formulae and explanations for Transfer Pricing.

This solution presents the implications of Transfer Pricing and clarifies and explains the relationship with inter company transfer. The study identifies contribution to overhead. Discussion focuses on three options for transfer pricing: cost plus, fair market value, and manager negatiated.

Corporation Pricing Elasticity

As the research starts to come in about your expansion opportunities abroad, the marketing department has discovered that the price elasticity for CPI's products in Brazil is expected to be much greater than in current markets served. Separately, your CFO sent you an e-mail earlier in the week stating that, depending on how much

McDonalds Pricing Strategy

Looking for ethical and legal considerations related to price of Mcdonald's turkey burgers & veggie burgers (proposed menu items) in essay format with references.

Managerial Accounting: Return on Pricing

Hometown Bank is determining the price for its newest mini debit card. The card can be used at any retail outlet with a swipe reader and is small enough to attach to a key chain - no PIN number or signature is required. Sigrid Olmo has developed the following annual information for use in upcoming price determination meetings:

iPad: Promotional and Pricing Strategies

Most promotional strategies have several ingredients called the promotional mix which may include advertising, public relations, sales promotions and personal selling. Select a product and discuss the promotional strategy of this product. Why was it effective or ineffective based on the objectives of the promotional strategy? Us

Psychological Pricing

Cite a local example of psychological pricing and evaluate whether it makes sense. How does prestige pricing fit into the marketing mix? Would exclusive distribution be necessary? Distinguish between sales analysis and performance analysis. Carefully explain what the iceberg principle should mean to the marketing manage

Pricing Policies: Skimming, Penetration

What pricing objective(s) is a skimming pricing policy most likely implementing? Is the same true for a penetration pricing policy? Which policy is probably most appropriate for each of the following products: a) new type of home lawn sprinkling system, b) a new children's toy c) a DVD of a best-selling movie.

Transfer Pricing and Performance Measures.

Comment on the importance of transfer pricing and performance measures. How do they relate? And why are they important in the business environment? Some helpful websites:

Webly Corporation Transfer Pricing.

Webly Corporation Two divisions of a Webly Corporation are involved in a dispute. Division A purchases part 101 and Division B purchases part 201 from a third division, C. Both divisions need the parts for products that they assemble. The intercompany transactions have remained constant for several years. Recently, outside sup

Pricing Issues on the Internet

One of the easiest places to see the impact of the Internet on marketing is by looking at its effect on pricing decisions and consumer's perceptions of prices. Since its inception, the World Wide Web (WWW) has developed the reputation as being the place to shop to get the lowest prices. - Why has this reputation developed? -

Pricing in Healthcare

Why is pricing as it relates to healthcare so difficult? What factors should be considered before pricing a product? Please back up your response don't just state your opinion.

Distribution and Pricing

Can you help me with the following: Discuss the various ways that distribution adds value (or utility) to a product or service, the impact that wholesalers and retailers have on that value, and how it can be used as a competitive advantage. As you market yourself to employers, the salary you demand is essentially your person

Identifying and discussing the issues in deciding on price. How to calculate the selling price, using cost-plus pricing. How to calculate the actual net income and actual ROI. What to do to determine a more accurate cost per unit.

Construction on the Atlantis Full-Service Car Wash is nearing completion. The owner is Jay Leer, a retired accounting professor. The car wash is strategically located on a busy street that separates an affluent suburban community from a middle-class community. It has two state-of-the-art stalls. Each stall can provide anythi

Transfer Pricing Concepts

Kringly Corporation Two divisions of a Kringly Corporation are involved in a dispute. Division A purchases part 101 and Division B purchases part 201 from a third division, C. Both divisions need the parts for products that they assemble. The intercompany transactions have remained constant for several years. Recently, out

Social Responsible Pricing

Please help with the following problem. Provide a reference to go along with the solution. Some argue that a business cannot sustain itself if it practices social responsible pricing. Defend social responsible pricing as a viable business practice, or describe why you believe that social responsible pricing can lead to a com

Cogent Arguments Relating to Pricing and Share Allocation

How do you explain the highly politicized nature of share issue privatization (SIP) pricing and share allocation policies? Are governments maximizing offering proceeds, or are they pursuing primary political and economic objectives?