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.

If the company has 460,000 shares outstanding and the stock currently sells for $42, 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.)

Assume that the company uses cumulative voting and there are four 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.)

Answer 1

Under straight voting, we need to own one-half of the shares, plus one share, in order to guarantee enough votes to win an election.

The Number of shares needed to guarantee election under straight voting will be:-

= (460,000 shares / 2) + 1

Shares needed = 230,001

Total cost will be = 230001*42

Total cost will be = $ 9,660,042 /-

If the company uses cumulative voting, we 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%

The number of shares you need to purchase is = (460000*20%) + 1 = 92,001

Total cost will be = 92001*42

Total cost will be = $ 3,864,042 /-