Question

Central Meat Market has been experiencing declining earnings but has just announced an extra bonus for its top executives. GFW MM, one of its subsidiaries, is disgusted with current management practices and is trying to get some of its own people elected to the board of directors.

There are 13 directors and 32,000 shares of stock outstanding. GFW MM controls proxies for 14,001 shares.

Required:

A. Under cumulative voting procedures, how many directors can GFW MM elect? (Round down the final answer to the nearest whole number.)

B. How many shares will GFW MM have to acquire in order to elect seven directors under cumulative voting?

Answer 1

Answer and Explanation:

A. Under cumulative voting procedures, GFW MM can elect a number of directors equal to the total number of shares it controls divided by the total number of shares outstanding, multiplied by the total number of directors.

To calculate this:

1. Determine the total number of shares controlled by GFW MM: 14,001 shares (given)

2. Determine the total number of shares outstanding: 32,000 shares (given)

3. Determine the total number of directors: 13 directors (given)

Using these values:

Number of directors GFW MM can elect = (Total shares controlled by GFW MM / Total shares outstanding) * Total number of directors

Number of directors GFW MM can elect = (14,001 / 32,000) * 13

After performing the calculation, GFW MM can elect approximately 5 directors under cumulative voting procedures.

B. To determine the number of shares GFW MM needs to acquire in order to elect seven directors under cumulative voting, we need to find the minimum number of shares that would give GFW MM the required voting power.

1. Determine the number of directors GFW MM wants to elect: 7 directors (given)

Using this value:

Number of shares GFW MM needs to acquire = (Number of directors GFW MM wants to elect / Total number of directors) * Total shares outstanding

Number of shares GFW MM needs to acquire = (7 / 13) * 32,000

After performing the calculation, GFW MM would need to acquire approximately 17,231 shares in order to elect seven directors under cumulative voting.