Warrant

OPTION WORKSHEET: WARRANTS

Valuing Management Options or Warrants when there is dilution

This program is designed to value options, the exercise of which can create more shares and thus affect the stock price. Th with warrants and management options. It is also the case with convertible bonds. As a general rule, using an unadjusted option pricing model to value these options will overstate their value.

Note: Before you run this program, check under preferences (under tools), and calculations, and ensure that there is a che box. You will get a circular reasoning warning, but this program needs circular reasoning to compute the option value. Enter Enter Enter Enter Enter Enter Enter Enter

the the the the the the the the

current stock price = 32.5 strike price on the option = 39.49 expiration of the option = 7.5 standard deviation in stock prices = 50.00% (volatility) annualized dividend yield on stock = 3.00% treasury bond rate = 7.75% number of warrants (options) outstanding =2532000 number of shares outstanding = 47350000

VALUING WARRANTS WHEN THERE IS DILUTION Stock Price= 32.5 # Warrants issued= Strike Price= 39.49 # Shares outstanding= Adjusted S = Err:522 T.Bond rate= Adjusted K= 39.49 Variance= Expiration (in years) = 7.5 Annualized dividend yield= Div. Adj. interest rate= d1 = N (d1) =

Err:522 Err:522

d2 = N (d2) =

Err:522 Err:522

2532000 47,350,000 7.75% 0.2500 3.00% 4.75%

OPTION WORKSHEET: WARRANTS

Value of the call =

Err:522

here is dilution

hus affect the stock price. This is the case l rule, using an unadjusted

d ensure that there is a check against the iteration mpute the option value.

OPTION WORKSHEET: WARRANTS

OPTION WORKSHEET: WARRANTS