Zenith Capital holds enough stock in Company X and Company Y to give it voting control of both firms. Consider the accompanying simplified balance sheets for these companies.

a. What percentage of the total assets controlled by Zenith Corporation does its common stock equity represent?

b. If another company, Z, owns 25% of the common stock of Zenith Corporation and, by virtue of this fact, has voting control, what percentage of the total assets controlled does the outside company’s equity represent?

c. How does a holding company effectively provide a great deal of control for a small pound investment?

d. Answer parts a and b in light of the following additional facts.

(1) Company X’s fixed assets consist of £60,000 of common stock in Company A. This level of ownership provides voting control.

(2) Company A’s total assets of £1,200,000 include £45,000 of common stock in Company B, which gives Company A voting control over Company B’s £150,000 of total assets.

(3) Company Y’s fixed assets consist of £180,000 of stock in both Company C and Company  D. In both cases, this level of ownership gives it voting control.
Companies C and D have total assets of £900,000 and £1,200,000, respectively.

Transcribed Image Text:

Assets Common stock holdings Company X Company Y Total Current assets Fixed assets Total Current assets Fixed assets Total Zenith Corporation 120,000 180,000 300,000 Liabilities and stockholders' equity 300,000 1,200,000 1,500,000 Company X Long-term debt Preferred stock Common stock equity Total 540,000 2,160,000 2,700,000 Current liabilities Long-term debt Common stock equity Total Company Y Current liabilities Long-term debt Common stock equity Total 120,000 75,000 105,000 300,000 300,000 600,000 600,000 1,500,000 300,000 1,500,000 900,000 2,700,000