John and Randy Form a Company with Assets Worth $900

question 221

Multiple Choice

John and Randy form a company with assets worth $900. They each have two shares of stock. The firm sells Cheri a warrant for one share of stock. The warrant has an exercise price of $200 and
Expires in one year. In one year, the firm's assets are worth $1,200 immediately before expiration of
The warrant. Should Cheri exercise the warrant?

• A) No, because the option is out of the money.
• B) Yes, because she stands to gain $40 by exercising.
• C) Yes, because she stands to gain $80 by exercising.
• D) Yes, because she stands to gain $100 by exercising.
• E) We can't tell without knowing what she paid for the warrant.