Problem 7-9 Voting Rights [LO 21 halenge athead is to serve on the board of aire
ID: 2557675 • Letter: P
Question
Problem 7-9 Voting Rights [LO 21 halenge athead is to serve on the board of airectors of Schenkel Enterpnises Untortunately, you will be the only indvidual voting for you After saccesstully completing your corporate finance class, you tees the next c t the company has 570,000 shares outstanding and the stock currently selts for $31, how much will t cost you to buy a seat if the company uses straight voting? (Do not round internmediate calculations and round Total cost Assume t at the company uses cur utahe voting there re tree seats n the current eec ton, how much a? t cost you to buy a seat now? Do not round intermediate calculations and round your answer to Total costExplanation / Answer
1) If the company has 570,000 shares outstanding and the stock currently sells for $31, how much will it cost you to buy a seat if the company uses straight voting?
Solution: 8,835,031
Working:
Shares needed = (570,000 shares / 2) + 1 =285,001
Total cost = 285,001 * $31 = 8,835,031
2) Assume that the company uses cumulative voting and there are three seats in the current election; how much will it cost you to buy a seat now?
Solution: 4,417,531
Working:
Percent of stock required = 1 / ( N + 1) = 1 / (3 + 1) = 0.25, or 25%
Number of shares to purchase = (570,000 * 0.25) + 1 = 142,501
Total cost = 142,501 * $31 = 4,417,531