Warren Buffet Case Solution
Case 1 | Warren Buffet | Group 7 |
According to the case, there are stock price changes for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement. Also, the bid price for PacifiCorp is $9.4 billion. After knowing this announcement, Berkshire Hathaway’s Class A shares price went up and make them gained in market value $2.17 billion. In Berkshire and other investors’ point of view, After Berkshire takeover PacifiCorp, it might have a good development and future so that the stock price went up. Berkshire believed that PacifiCorp can have good earning returns in the future. The intrinsic value is more valuable than its cost so they are willing to pay $9.4 billion to acquire.
Moreover, based on the multiples
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As a student in Finance, I will not completely consent to the approach in the book since future cash flows should be calculated and predicted from the past per-year earnings in some way. By the same token, the accounting values such as income statements and balance sheets are important factors to look at the progress of a firm such as the return on equity and price-per-earning ratio. On the other hand, the economic reality is also important in terms of the intrinsic value, the quality of management and the firm’s capacity to create value and some intangible assets would be valued fairly. Thus, both approaches are quite valuable. At second, Mr. Warren E. Buffett compared an investment opportunity against the lost opportunity such as other returns available in the market and the comparison becomes the benchmark of performance. As a result, I would agree with this idea since we then can use this benchmark to extend to other companies all over the world. The third point that Mr. Warren E. Buffett told us is to compare between the intrinsic value and the book value by inserting the time value of money so that we can know whether the project would be value creation or destruction. In my opinion, using both values would be a good approach to evaluate a project since we have to know how a company performed in past and how it will go in the future but there are two