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A companys capital structure consists of 5 million shares of common stock and zero coupon...

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Finance

A companys capital structure consists of 5 million shares of common stock and zero coupon bonds with a par (or face) value of $30 million that matures in nine months. The firm just announced that it will issue warrants with an exercise price of $90 and nine months until expiration to raise the funds to pay off its maturing debt. Each warrant gives its owner the right to buy a single newly issued share of common stock and can be exercised only at expiration. The firm will place the proceeds from the warrant issued immediately into Treasury bills. The firm will have assets worth $400 million after the announcement. The company does not pay dividends. The standard deviation of the returns on the firms assets is 40 percent, and Treasury bills with a nine-month maturity yield 5 percent. How many warrants must the firm issue today to be able to use the proceeds from the sale to pay off the firms debt obligation in nine months?

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