Chapter 5: Q10BP. (page 568)

Mr. Michaels controls proxies for 40,000 of the 75,000 outstanding shares of Northern Airlines. Mr. Baker heads a dissident group that controls the remaining 35,000 shares. There are seven board members to be elected and cumulative voting rules apply. Michaels does not understand cumulative voting and plans to cast 100,000 of his 280,000 (40,000 X 7) votes for his brother-in-law, Scott. His remaining votes will be spread evenly between three other candidates.
How many directors can Baker elect if Michaels acts as described? Use logical numerical analysis rather than a set formula to answer the question. Baker has 245,000 votes (35,000 X 7).

Short Answer

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Baker will be able to elect 4 directors.

Step by step solution

Information provided in the question

Outstanding shares = 75,000 shares

Votes held by Michael = 280,000

Votes held by Baker = 245,000

Explanation for the number of directors that can be elected by Baker

Michael will be left with 180,000 votes if he casts 100,000 for his brother-in-law and he can cast 60,000 votes each for the three candidates. Baker can elect 4 directors out of a total of 7 directors and can distribute his 245,000 votes equal to the remaining directors. This will result in 61,250 votes casted by Baker for all four directors.

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Bailey corporation
Income statement
For the year 20X1
Sales (all on credit)	\(42,680,000
Cost of goods sold	\)32,240,000
Gross profit	\(10,440,000
Selling and administrative expenses	\)4,558,000
Operating profit	\(5,882,000
Interest expense	\)600,000
Net income before taxes	\(5,282,000
Taxes	\)2,120,000
Net income	\(3,162,000

Bailey corporation
Balance sheet
As of December 31, 20X1
Assets
Current assets:
Cash	\)250,000
Marketable securities	\(130,000
Accounts receivables	\)6,000,000
Inventory	\(8,300,000
Total current assets	\)14,680,000
Net plant and equipment	\(13,970,000
Total assets	\)28,650,000
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	\(3,800,000
Notes payable	\)3,550,000
Total current liabilities	\(7,350,000
Long-term liabilities	\)5,620,000
Total liabilities	\(12,970,000
Stockholder’s equity:
Common stock (1,800,000 shares at \)1 par)	\(1,800,000
Capital in excess of par	\)6,300,000
Retained earnings	\(7,580,000
Total stockholder’s equity	\)15,680,000
Total liabilities and stockholder’s equity	$28,650,000

Short Answer

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Explanation for the number of directors that can be elected by Baker

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