computation (with debtand cash valuesobtained from the
parent company’s consolidated statements):
The first additional term in the equation adds in the
proportionalholdings(πj)ofnetdebtintheminorityholdings
(jholdings),whereasthesecondtermbringsinthefullvalue
of equity in majority holdings (k holdings). A far easier
solution is to compute enterprise value without cross
holdings:
Thefirstadditionaltermintheequationnetsouttheestimated
market value of equity of minority holdings, whereas the
second termeliminates theeffects ofmajority holdings by
subtractingtheestimatedmarketvalueoftheholdingandthe
consolidated debt and cash from the cross holding.
Measuring Debt
Inthediscountedcashflowvaluation,wedevelopedtwosets
ofrulesfordebt.Whencomputingcostofcapital,wepushed