5. (Dual-class shares): VMware (VMW) discloses the following information VMW Vot

Question

5. (Dual-class shares): VMware (VMW) discloses the following information VMW Votes share | # of shares outstanding # of shares outstanding held million v EMC (million A share B share 100 400 30 300 10 The dividend (cash flow) right of the two share classes is identical. Combine EMC's holdings of both classes to calculate the following items (a) The proportion of voting rights owned by EMC. (b) The proportion of dividend rights owned by EMC (c) Suppose Intel (INTC) only owns 10 million shares of class A stock. If VMW pays out a dividend of $400 ion in a couple of years, how much (in Smillion) will Intel receive? (d) If VMW pays out a dividend of $400 million, how much (in Smillion) will EMC receive? (e) (hypothetical pyramid structure) If EMC owns 50% of another firm A directly, which in turn owns 30% of firm C. Additionally, EMC owns 70% of firm B directly, which in turn owns 10% of firm C. Thus, considering the weakest link. EMC has .1%) of the dividend (cash flow) rights and (%) of the voting right over the firm C

Explanation / Answer

Ans a) Voting right owned by EMC =( 1* number of class A share + 10 * class B share )/(1*100 + 400 *10)

= (30 + 3000)/(100 + 4000)

= 73.9%

Ans b) Dividend right owned by EMC = (1* number of class A share + 1 * class B share )/(1*100 + 1*400)

= (30 + 300)/500

= 66%

Ans c) Dividend given to Intel = dividend * share owned by Intel/Total share

= 400 * 10/500

= 8 Million

Ans d) Dividend given to EMC = dividend * share owned by EMC/Total share

= 400 * 330/500

= 264 Million

Ans e) Cash flwo righ for EMC = 50%*30% + 70%*10% = 22%

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