Capital Valuation Paper

1634 Words7 Pages
Write a 1,050- to 1,750-word paper in which you justify the current market price of the organization’s debt, if any, and equity, using various capital valuation models. Complete the following in your paper:

• Show calculations that support your findings, including those involving rates of return.
• Defend which valuation model best supports your findings.

Capital Valuation Paper

Capital Valuation Paper
Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary
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The subject organization to which the valuation model stands applied in this scenario, that of Berkshire Hathaway, has a measurable debt load of 61.8 billion dollars and a level of equity at, as of March 2012, 176 billion dollars (Morningstar, Inc., 2012). Given a continuation of the assessed results over the course of the example five year period, an investor would return a substantial profit from an investment in Berkshire Hathaway. A valuation as taken from a discounted cash flow analysis concerning the company, Berkshire Hathaway, returns an indication of profit, thereby validating the existing debt to equity ratio of 0.35% over the same covered period for March of 2012 (Morningstar, Inc., 2012).
Discount factor = 1/(1+interest rate)^year
PV = $123,375.00 * (1/ (1+0.63%) ^5) = $10,722.39
FV = (+0.63%) ^5 = 11.51 * $123,375.00 = $1,419,597.38
Weighted Average Cost of Capital
As exists with regard to the operations of any organization, the operations at Berkshire Hathaway require an outlay of funding as the company grows, acquires assets and otherwise progresses through the functions as a business enterprise. The sources used to provide capital with which to finance these efforts include the sale of company stock and such income as derived from the ownership of company shares in such performing assets as the railroad
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