Question

The shareholders of the Mango Company need to elect seven new directors. There are 890,000 shares outstanding currently trading at $49 per share. You would like to serve on the board of directors, unfortunately no one else will be voting for you. a. How much will it cost you to be certain that you can be elected if the company uses straight voting? (Do not round Intermediate calculations and enter your answer In dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567.) b. How much will it cost you if the company uses cumulative voting? (Do not round Intermediate calculations and enter your answer In dollars, not millions. rounded to the nearest whole number, e.g., 1,234,567.) a. Straight voting cost b. Cumulative voting cost

Answer 1

a. If the company uses straight voting, the board of directors is elected one at a time. You will need to own one-half of the shares, plus one share, in order to guarantee enough votes to win the election.

Shares needed = (890,000 shares / 2) + 1

Shares needed = 445,001

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

Total cost = 445,001 × $49

Total cost = $21,805,049

b. If the company uses cumulative voting, the board of directors are all elected at once. 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 is:

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

Percent of stock needed = 1 / (7 + 1)

Percent of stock needed = 0.1250 or 12.50%

Number of shares to purchase = (890,000 × 0.1250) + 1

Number of shares to purchase = 111,251

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

Total cost = 111,251 × $49

Total cost = $5,451,299