The capital structure of Whitefield Mills, Inc., is as follows: Long-term debt ..................$250 million Common stock ,

Question:

The capital structure of Whitefield Mills, Inc., is as follows:

Long-term debt ..................$250 million

Common stock, $1 par ..............25 million

Contributed capital in excess of par value .......150 million

Retained earnings .................350 million

Total capitalization ...............$775 million

The company has decided to raise additional capital by selling $75 million of 8 percent debentures with warrants attached. Each $1,000 debenture will have 25 warrants attached, and each warrant will entitle the holder to purchase one share of common stock at $30.

a. Show the company’s new capital structure after the sale of debentures and the exercise of all the warrants. Assume that no other changes in capital structure occur between now and the time the warrants are exercised.

b. What condition is necessary for the warrants to be exercised?

c. How much total money will the company raise as a result of this security issue, if all warrants are exercised?

Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who... Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...