Question

Suppose a family owns just over 50% of Firm A, the top firm of a pyramid. Firm A owns just over
50% of Firm B, and Firm B owns just over 50% of Firm C. What percentage of the cash flows
from Firm C does the family receive (approximately)? What percentage of the control does the
family have over Firm C? Explain.

Answer 1

Firm B over Firm C--- 50%*Cash flows of C

Firm A over Firm B---50%*50%*Cash flows of C

Family over Firm A--- 50%*50%*50% *Cash flows of C

So,the family receives   50%*50%*50% *Cash flows of C

ie. Cash flow stake is approximately, 12.5% of the cash flows of C

Percentage of the control the family has over Firm C--just over 50%--

as it has substantial control over Firm A --which in turn has substantial control (owns)over firm B which in turns owns just over 50 % of Firm C

ie. JUST OVER 50% ownership gives substantial control over that firm.