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 530,000 shares outstanding and the stock currently sells for $35, 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.)

Total cost            $

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

Total cost            $

Answer 1

In case company uses the straight voting , there is one vote against each share held for election of each individiual director, if one want to become the part of board of director he/she must have 50%+1 shares in his/her hand
For example in the given case
No fo shares=530000
50% of the above is=265000
to get the majority we should add one more share into it so total shares to be held=265001
cost of 265001 shares is=265001*35=$9,275,035
Total cost=	$ 9,275,035
In case of cummulative voting total no of votes=no of seats*total number of shares held
and all such vote can be cast against any director
to know the percentage of vote is required to get equal right=1/(N+1) where N= no of seats
=1/(3+1)	0.25	or	25%
to become equal to no of shares required=530000*25%=132500
to get the majority we should add one more share into it so total shares to be held=132501
cost of 265001 shares is=132501*35=$4,637,535
Total cost=	$ 4,637,535