The Capital Structure of Springmaid Company Is as Follows

question 72

Multiple Choice

The capital structure of Springmaid Company is as follows:
Long-term debt $ 400 million
Common stock, $1 par 50 million
Contributed capital in excess of par 250 million
Retained earnings 600 million
Total $ 1,300 million
The company has decided to raise additional capital by selling $100 million of 8% debentures with warrants attached.Each $1,000 debenture will have 40 warrants attached, and each warrant will entitle the holder to purchase one share of common stock at $20.Assume that no other changes in the capital structure occur between now and the time the warrants are exercised.Determine the common stock at par account balance after exercise of the warrants.

• A)$50 million
• B)$54 million
• C)$56 million
• D)$35 million

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Definitions:

Liberally Administered

A principle or policy applied in a manner that is flexible, generous, or not strictly in accordance with strict rules or formalities.

Aggrieved Party

An individual or entity that has suffered legal wrong or harm, and who is entitled to bring a lawsuit against the party responsible for that harm.

Modified Contract

An agreement where the original terms have been altered or amended by the parties involved, following mutual consent.

Consideration

The value (such as money, a promise, or a service) that is given by both parties in a contract making the agreement legally binding.