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 435,000 shares outstanding, and the stock currently sells for $52. 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?
For computing the cost, first we need to find out how much shares are needed which is shown below:
= (Number of shares) ÷ (two) + one
= (445,000 shares) ÷ (2) + 1
= 222,501 shares
Now the cost would be
= Number of shares needed × selling price per share
= 222,501 shares × $54
We assume the company use the straight voting
For computing the cost of buying a set first we have to determined the percentage needed for the stock which is shown below:
= 1 ÷ (Number of seats + 1)
= 1 ÷ (4 +1 )
Now number of stock required is
= (380,000 shares × 20% ) + 1
= 76,001 shares
So, the total cost required to buy a seat is
= 76,001 shares × $41
We simply multiplied the number of stock with the selling price of the stock so that the total cost could come
For computation of cost to buy a seat first we need to follow some steps which is shown below:-
Step 1 :
Number of seats available for election = 4
So, the percentage of stock needed = 1 ÷ (4 + 1)
Number of Stock needed = (Outstanding shares × Percentage of stock) + 1
= (430,000 × 20%) + 1
= 86,000 + 1
Total cost required to buy a seat = Number of Stock × Stock Currently Sold
= 86,001 × $51
So, we have applied the above formula.
You will need more than HALF of the shares to win.
400,000 shares are there
Half of it:
400,000/2 = 200,000 shares
You would need 1 more to it, so:
Shares needed = 200000 + 1 = 200,001 shares
Total Cost would be the number of shares needed multiplied by the price of each share.
Total Cost = 200,001 * 45 = $9,000,045
The cost to buy seat when company uses straight voting is 13.975.043.
The answer and procedures of the exercise are attached in the image below.
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
It will cost you $12,015,054 to buy a seat.
cost to buy a seat = number of shares to be owned*cost per share
= (one half of outstanding shares + 1)*cost per share
= (445,000/2 + 1)*$54
Therefore, It will cost you $12,015,054 to buy a seat.
The correct answer is $3840048.
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
So, number of shares required = (total number of shares × .20 ) + 1
= ( 400000 × .20 ) + 1
= 80000 + 1
= 80001 shares
Now, total cost = 80001 × $48
Hence the cost to buy a seat will be $3840048.