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 person voting for you. Schenkel has 400,000 shares outstanding, and the stock currently sells for $48.

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?

Answer 1

The correct answer is $3840048.

Step-by-step explanation:

According to the cumulative voting, all boards of directors get elect at the same time.

To confirm a seat in the election, one has to buy one half share plus one extra share.

Given data : Total shares = 400,000

Cost per share = $48

So, in cumulative voting, the total shares and cost to buy a seat will be :

= 1 / ( total number of seats + 1 )

= 1 / ( 4 + 1 )

= 1 / 5

= .20

So, number of shares required = (total number of shares × .20 ) + 1

= ( 400000 × .20 ) + 1

= 80000 + 1

= 80001 shares

Now, total cost = 80001 × $48

= $3840048

Hence the cost to buy a seat will be $3840048.