Question

The shareholders of the Stackhouse Company need to elect nine new directors. There are 940,000 shares outstanding currently trading at $54 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

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.

So, the number of shares needed to guarantee election under straight voting will be:

Shares needed = (940,000 shares / 2) + 1

Sharesneeded = 470,001

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

Total cost = 470,001 *$54

Total cost = $25,380,054

b.How much will it cost you if the company uses cumulative voting?

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 / (9 + 1)

Percent of stock needed = .1 or 10.00%

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

Number of shares to purchase = (940,000 × .10) + 1

Number of shares to purchase = 94,001

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

Total cost = 94,001 *$54

Total cost = $5,076,054