Question

After successfully completing your corporate finance class, you feel the next challenge ahead is to serve on the board of directors of Schenkel Enterprises. Unfortunately, you will be the only individual voting for you. a. If the company has 525,000 shares outstanding and the stock currently sells for $38 how much will it cost you to buy a seat if the company uses straight voting? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. Assume that the company uses cumulative voting and there are 4 seats in the current election; how much will it cost you to buy a seat now? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) a. Straight voting Cumulative voting b.

Answer 1

a. If the company uses straight voting, you will need to own one-half of the shares, plus one share, inorder to guarantee enough votes to win the election. So, the number of shares needed to guarantee election under straight voting will be:

Shares needed = (525,000 shares / 2) + 1

Shares needed = 262,501

And the total cost to you will be the shares needed times the price per share, or:

Total cost = 262,501 × $38

Total cost = $9,975,038

b. If the company uses cumulative voting, you will need 1 / (N + 1) percent of the stock (plus one share) to guarantee election, where N is the number of seats up for election. So, the percentage of the company’s stock you need will be:

Percent of stock needed = 1 / (N + 1)

Percent of stock needed = 1 / (4 + 1)

Percent of stock needed = .20, or 20%

Number of shares to purchase = (525,000 × .20) + 1

Number of shares to purchase = 105,001

Total cost = 105,001 × $38

Total cost = $3,990,038