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Rust Pipe Co. was established in 1994. Four years later the company went public. At that time, Robert Rust, the original owner, decided to establish two classes of stock. The first represents Class A founders’ stock and is entitled to 9 votes per share. The normally traded common stock, designated as Class B, is entitled to one vote per share. In late 2010, Mr. Stone, an investor, was considering purchasing shares in Rust Pipe Co. While he knew the founders’ shares were not often present in other companies, he decided to buy the shares anyway because of a new technology Rust Pipe had developed to improve the flow of liquids through pipes.

Of the 1,450,000 total shares currently outstanding, the original founder’s family owns 51,825 shares. What is the percentage of the founder’s family votes to Class B votes?

Step by step solution

01

Information provided in the question

Votes per share allotted to founders = 9 votes per share

Votes per share allotted to common stockholders = 1 vote per share

Shares outstanding = 1,450,000

Shares owned by the founder’s family = 51,825 shares

02

Calculation of percentage of votes held by the founder’s family to class B votes

The founder’s family holds 33.36% of votes.

$\begin{array}{rcl}\text{Founder's family votes}& =& \text{Number of shares}×\text{Votes per share}\\ & =& 51,825×9\\ & =& 466,425\text{votes}\\ & & \end{array}$

$\begin{array}{rcl}\text{Class B votes}& =& \text{Total shares}-\text{Founder's family shares}\\ & =& 1,450,000-51,825\\ & =& 1,398,175\\ & & \end{array}$

$\begin{array}{rcl}\text{Percentage of votes}& =& \frac{\text{Founder's family votes}}{\text{Class B votes}}\\ & =& \frac{466,425}{1,398,175}\\ & =& 33.36\%\\ & & \end{array}$

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