In comparison to the issuance of a bond without warrant, the issuance of a bond with warrants will: A) Increase D/E B) Decrease Interest expenses C) Increase CFO D) Decrease ROE


yeah d


Two are the correct answers…

decrease ROE, warrants are equity

map1 Wrote: ------------------------------------------------------- > decrease ROE, warrants are equity Plus…also another one is correct… go on…

it will also decrease interest expenses because the market will require a lower rate of return on a bond with a warrant attached than on a straight bond


Correct answers are C and D

strange, if you issue with bonds with warrants attached IE is lower because the yield on the bonds will be lower

Then B has to be true because that’s why CFO is up.

but i suppose CFO would also be higher since interest expense is not being charged

D makes sense. Why C?

i think bonds with warrants have lower interest expense too edit: schweser says Bonds with warrants Versus conventional debt: Lower interest expense Higher operating cash flow Lower balance sheet liability

yup bonds with warrants will have lower interest expense as well.

Nice one… what do you think guys? :slight_smile:

that means all are right, because then C would be correct as well lol

yes, C is also true, bonds with warrants are like bonds at discount, have higher CFO

Nope…because a bond with warrants usually is issued at discount… interest expenses are higher due to the bond discount :slight_smile: