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In: Finance

Does the firm’s EPS increase or decrease when: a) Warrant holders exercise their warrants? b) Convertible...

Does the firm’s EPS increase or decrease when:

a) Warrant holders exercise their warrants?

b) Convertible bondholders decide to convert?

c) Speculators exercise their call options in the options market?

d) Corporate executives exercise their stock options?

Solutions

Expert Solution

a: EPS decreases since the Earnings remain the same but the number of stock outstanding increases due to exercise of warrants.

b: EPS decreases since the Earnings remain the same but the number of stock outstanding increases since bonds are converted into shares.

c: There is no impact on EPS since the earnings remain the same and the number of shares outstanding do not change. Call option is the option to buy stock in the market and doe not increase the number of shares outstanding.

d: EPS decreases since the Earnings remain the same but the number of stock outstanding increases due to exercise of stock options.

jeff jeffy answered 2 years ago
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