After successfully completing your corporate finance class, you feel the next ch

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 395,000 shares outstanding, and the stock currently sells for $44. 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?

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 395,000 shares outstanding, and the stock currently sells for $44. 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?

Explanation / Answer

In cumulative voting, the number of votes that can be cast is the product of Number of shares and the Number of positions.

Here, the number of shares are 395,000 and the number of positions are 4.

Total votes that can be cast = 395,000 x 4

                                             = 1,580,000

Since there is only one person who is voting for himself, the number of shares belongs to him.

hence, the price of each share is $44 and the total shares are 1,580,000,.

Total cost = 1,580,000 x $44

                = $69,520,000

Therefore, it costs $69,520,000 to buy a seat.

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