Purinex, Inc Essay

2954 Words12 Pages
Warren Buffett 1. What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power plc on the day of the acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp? Answer1: The increase in the stock price of Scottish Power plc and Berkshire Hathaway indicate a market approval for the acquisition and created value for both buyers and sellers. Answer2: a. the possible meaning of the changes in stock price is due to the fact that the deal created value for both buyers and sellers; Berkshire was more diversified after the acquisition. b. The $2.55 billion gain in Berkshire’s market value of equity…show more content…
Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value? As an alternative, the instructor could suggest that students perform a simple discounted cash-flow (DCF) analysis. Answer1: If you use CAPM for the simple DCF analysis: K=rf+B(rm-rt) rf =5.762 K=5.762+.75(10.5-5.762) B=.75 =9.32%=Discount rate rm=10.5 $5.1/(1+.0932)=$4.76 => it is in range of the rest of the comparable firms. Answer2: 4. How well has Berkshire Hathaway performed? How well has it performed in the aggregate? What about its investment in MidAmerican Energy Holdings? Answer1: Overall, Berkshire Hathaway has performed brilliantly in the last 40 years. Berkshire's class A shares have been among the highest-priced shares on the New York Stock Exchange, in part because they have never had a stock split and never paid a dividend, retaining corporate earnings on its balance sheet in a manner that is impermissible for private investors and mutual funds. The company averaged an annual growth in book value of 20.3% to its shareholders for the last 40 years. Answer2: It has performed very well. Berkshire Hathaway has consistently outperformed the market since its inception in 1965. In 1977, the firm’s year end closing share price was $107; on May 24, 2005 the closing price on its Class A shares reached $85,500. Berkshire has had an annual increase of wealth of 24% since 1965, which is more than
Open Document