What is a primary advantage of issuing warrants?

What is a primary advantage of issuing warrants?

• A. Immediate cash flow
• B. Rights to purchase at a future date
• C. Higher dividend yield
• D. Reduction of debt liabilities

Answer: (B)

Issuing warrants provides the holder with the right to purchase a company's stock at a specified price within a designated timeframe. This feature is particularly advantageous as it allows investors to speculate on the future performance of the company without an immediate cash outlay. They can benefit from potential price appreciation of the underlying stock while holding onto the warrants, effectively giving them the chance to invest in the company at predetermined terms in the future. This flexibility can attract investors looking for exposure to a company's growth potential, and businesses can use this as a tool to raise capital without incurring immediate debt. The other options highlight aspects that are not directly tied to the primary mechanism of warrants. While immediate cash flow and reduction of debt liabilities may result from different financing strategies, they are not intrinsic benefits of issuing warrants. Similarly, higher dividend yield relates to stock ownership and is less relevant since warrants do not provide any dividends themselves.

Issuing warrants provides the holder with the right to purchase a company's stock at a specified price within a designated timeframe. This feature is particularly advantageous as it allows investors to speculate on the future performance of the company without an immediate cash outlay. They can benefit from potential price appreciation of the underlying stock while holding onto the warrants, effectively giving them the chance to invest in the company at predetermined terms in the future. This flexibility can attract investors looking for exposure to a company's growth potential, and businesses can use this as a tool to raise capital without incurring immediate debt.

The other options highlight aspects that are not directly tied to the primary mechanism of warrants. While immediate cash flow and reduction of debt liabilities may result from different financing strategies, they are not intrinsic benefits of issuing warrants. Similarly, higher dividend yield relates to stock ownership and is less relevant since warrants do not provide any dividends themselves.