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25 June, 15:28

On March 1, 2018, E Corp. issued $1,400,000 of 8% nonconvertible bonds at 103, due on February 28, 2028. Each $1,000 bond was issued with 30 detachable stock warrants, each of which entitled the holder to purchase, for $75, one share of Evan's $25 par common stock. On March 1, 2018, the market price of each warrant was $3. By what amount should the bond issue proceeds increase shareholders' equity?

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  1. 25 June, 16:00
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    Answer: $126,000

    Explanation: Shareholders equity can be defined as the total amount of investment done by the shareholders in the company. This investment can be done through various kinds of securities like common stock, preference shares.

    As per this problem shareholder equity would be

    = (no. of shares to be collected by warrant holders) * (price of each warrant)

    and,

    no. of shares to be collected = (1400 bonds) * (30 shares)

    = 42,000 shares

    .

    therefore, equity : -

    (42,000 shares) ($3) = $126,000
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