Four companies belong to a group and are listed on a stock exchange. The cross-
ID: 2639367 • Letter: F
Question
Four companies belong to a group and are listed on a stock exchange. The cross-holdings of these companies are as follows.
? Company A owns30% of Company B and 10% of Company C.
? Company B owns 20% of Company C.
? Company C owns 10% of Company A, 20% of Company B, and 30% of Company D.
? Company D owns 20% of company B.
Each company has a market capitalization of $100 billion. You wish to adjust for cross-holding to reflect the weights of these companies in a market-capitalization weighted index.
a. What adjustments would you make in the market capitalization of each company to reflect the free float?
b. What would be the total adjusted market capitalization of the four companies?
Explanation / Answer
Solution:
a)
Free Float Adjustment Excludes The Equity held by associate/group companies (cross-holdings).
Therefore The Adjusted Market Capitalisation will be as follows:
Market Capitalisation of A = 100 - 30 - 10
= $ 60billion ------------------- (i)
Market Capitalisation of B = 100 - 20
= $ 80 billion --------------------- (ii)
Market Capitalisation of C = 100 - 10 -20 - 30
= $ 40 billion -------------------- (iii)
Market Capitalisation of D = 100 - 20
= $ 80 billion ------------------- (iv)
b)
Total Adjusted Maket Capitilisation of four companies = (i) + (ii) + (iii) + (iv)
= 60 + 80 + 40 +80
= $ 260 billion
Company Total Market Capitalisations (in billions) Holding of A (in billions) Holdiing of B (in billions) Holding of C (in billions) Holding of D (in billions) A $100 $ 30 $10 B $100 $20 C $100 $10 $ 20 $ 30 D $100 $ 20Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.