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The Monroeville Company has warrants outstanding that expire in five years. Each warrant entitles the holder to purchase 0.5 shares of common stock at an exercise price of $32 per share. Determine the formula value and premium over the formula value if the respective prices of common stock and warrants are:
a. $30 per share and $1 per warrant.
b. $32 per share and $2 per warrant.
c. $38 per share and $3.50 per warrant.
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Duval Inc. uses only equity capital, and it has two equally-sized divisions. Division A's cost of capital is 10.0%, Division B's cost is 14.0%, and the corporate (composite) WACC is 12.0%.
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