The shareholders of the Stackhouse Company need to elect nine new directors. The

Question

The shareholders of the Stackhouse Company need to elect nine new directors. There are 950,000 shares outstanding currently trading at $55 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.)

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.)

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.)

Explanation / Answer

(a) Straigh Voting implies that a particular shareholder may cast only one vote per share held by the shareholder. Since no one but myself is voting for the directorial position I need to capture atleast half of the total outstanding shares (as each share has one vote).

Total Outstanding Shares = 950000 and Current Stock Price = $%%. In order to purchase atleast half of the total outstanding shares (and therefore half the voting rights), cost incurred = [Total Outstanding Shares / 2] x Current Stock Price = [950000 / 2] x 55 = $ 26125000

(b) In Cumulative Voting a particular shareholder has votes equal to the number of shares held multiplied by the number of positions being voted for. Therefore, the shareholder needs to have say K shares and his/her cumulative vote becomes K x 9. This cumulative number of votes needs to be equal to atleast half the total outstanding shares which is equal to 950000

Therefore, 950000/2 = 9xK

475000 / 9 = K

Therefore, K = 52777.77 which can be rounded off to 52778

Current Stock Price = $ 55

Therefore, total cost incurred = 55 x 52778 = $ 2902790

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