There are three seats on the board of directors of MMT,Inc.,up for election.The firm has 175,000 shares of stock outstanding and uses cumulative voting.Each share is granted one vote per open seat.You currently own 10,000 shares that have a market value of $23 each.How much must you spend,if anything,to acquire sufficient shares to guarantee your election to the board? Assume no one else votes for you.
A)$1,111,690
B)$776,273
C)$830,814
D)$1,006,273
E)$688,230

Question

Quizplus · Accepted Answer

In cumulative voting, the total number of votes that a shareholder can cast is equal to the number of shares they own multiplied by the number of seats available. To guarantee a seat, you need more than 1/4 of the total votes (since 1/4 of the votes would only guarantee influence over one seat in a scenario where votes are evenly distributed across four hypothetical candidates for three seats). The total votes = 175,000 shares * 3 seats = 525,000 votes. To guarantee a seat, you need 1 more vote than 1/4 of this, which is 525,000 / 4 = 131,250 votes, plus 1 vote = 131,251 votes. You already have 10,000 shares * 3 votes per share = 30,000 votes. You need 131,251 votes - 30,000 votes = 101,251 more votes. Since each share gives you 3 votes, you need 101,251 votes / 3 votes per share = 33,750.33 shares. Since you can't buy a fraction of a share, you need to buy 33,751 more shares. The cost to buy these shares = 33,751 shares * $23 per share = $776,273.

There Are Three Seats on the Board of Directors of MMT,Inc.,up