Question

The shareholders of the Stackhouse Company need to elect seven new directors. There are 810,000 shares outstanding currently trading at $41 per share. You would like to serve on the board of directors; unfortunately no one else will be voting for you.

  

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. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Total cost

$

  

How much will it cost you if the company uses cumulative voting? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

  

Total cost

$

Answer 1

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

Shares needed = (810000 shares / 2) + 1

Shares needed = 405001

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

Total cost = 405,001 *41

Total cost = 16605041

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 = .1250 or 12.50%

So, the number of shares you need to purchase is:

Number of shares to purchase = (810,000 × .1250) + 1

Number of shares to purchase= 101251

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

Total cost = 101251 *41

Total cost = 4151291