Why would a person want to exercise a warrant if the exercise price into 1 share of common stock was $20, and the actual par value of common stock was $5. Would we not want the par value to be higher than the exercise price for a person to have an incentive to want to buy a share of stock? Or am I mixing Par with Market… Where does the additional Paid in Capital go after par*#shares is accted for? Please help and explain.
Yes, you are mixing par with market value. Par value is the price of the stock at the initial offering, a lowest that the company guarantees to the shareholder would not be breached (no securities would further be issued at that price or lower). The market value is the value determined by the market, through transactions. Paid in capital is what a buyer pays for securities (common or preferred). The equivalent of the par value of stock is called capital stock, and the plus is called Additional aid in capital. Both are parts of Equity. A warrant would be exercised only if the exercise price is lower than the average annual price of a security (not lower than the market price of the stock at the time of exercise, or at year end, but the average during the year).
And you are confusing par value with IPO price. Par value means almost nothing now and they haven’t issued stock at par value in my lifetime (though I think they did once). Most stock now has a par value of 0.01 or something and that is just to comply with ancient laws that nobody has bothered to change.
Yeap, you’re right, I did confuse the two.