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.

Requirement 1:

If Schenkel has 350,000 shares outstanding and the stock currently sells for $37, how much will it cost you to buy a seat if the company uses straight voting? (Do not round intermediate calculations.)

Total cost

$

Requirement 2:

Assume that Schenkel 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.)

Total cost

Answer 1

Solution:
a.	Total cost	6,475,037
Working Notes:
	if the company uses straight voting, then we need (1/2 of total shares + 1 share ) enough shares to win
	No of shares required under Straight voting
	= 1/2 x 350,000 shares + 1 share
	= 175,000 shares + 1 share
	= 175,001 shares
	Total cost = no of shares required x Current share price
	Total cost =   175,001 x $37
	Total cost = $6,475,037
b.	Total cost	2,590,037
Working Notes:
	If Schenkel uses cumulative voting , then you need 1/(n+1) percent of shares plus 1 share to confirm you have one seat out of 4 seats , where n = 4 the total no of seat.
	Percent of shares = 1/(n+1) =1/(4+1) =1/5=0.20 =20%
	So total no shares needed = 20% x 350,000 shares + 1 share
	So total no shares needed = 70,000 share + 1 share
	So total no shares needed = 70,001 share
	Total cost = no of shares required x Current share price
	Total cost =   70,001 x $37
	Total cost = $2,590,037
Please feel free to ask if anything about above solution in comment section of the question.