Premium Essay


In: Business and Management

Submitted By erinkc
Words 430
Pages 2
1. What is the possible meaning of the changes in stock price for Berkshire Hathaway and Scottish Power on the day of the acquisition announcement: Specifically, what does the $2.55 billion gin in Berkshire market value of equity imply about the intrinsic value of PacifiCorp?
The possible meaning of the change of the stock is that the facts that are created in the deal had a positive effect on both the buyers ( BRK) and the sellers which are the mother company of Pacific( Scottish power),
To find the 2.55 Billion gain of BRK on the market value equity that the intrinsic value of Pacific was good because it was within the range demonstrated in the calculations I have done:- $2.55 billion / 312.8 million = $8.17 (Berkshire is willing to pay this premium for each share of PacifiCorp)

5.1 billion / 312.18 million = $16.30 per share of PacifiCorp

$8.17 + 16.30 = $24.47
(all information taken from chart 9)
2. Based upon the multiples for comparable regulated utilities, what is the range of possible values for PacifiCorp? What questions might you have about this range?
We find the range of possible values for PacifiCorp in chart 10:-

A. Revenue median of $6.252 Billion, mean of $6.584 Billion.

B. EBIT median of $8.775 Billion, mean of $9.289 Billion.

C- EBITDA median of $9.023 Billion, mean of $9.076 Billion.

D- Net Income median of $7.596 Billion, mean of $7.553 Billion.

E- EPS median of $4.277 Billion, and a mean of $4.308 Billion.

F- Book value median of $5.904 Billion, mean of $5.678 Billion.
The questions we may have on PacifiCorp is about the EBITDA and the NI comparing the value of them.

3. Assess the bid for PacifiCorp. How does it compare with the firm’s intrinsic value? As an alternative how does the value from a DCF approach differ from say balance sheet methods, income sheet methods (multiples), goodwill based methods, or…...

Similar Documents

Premium Essay

Buffett Rule

...The Buffett Rule is a rule to ensure that no household making over 1 million dollars annually should pay a smaller share of their income in taxes than middle class (Buffet Rule). In the recent years Obama has sent a proposal an amendment called the buffet rule but is also known as the Paying A Fair Act of 2012. This amendment says that the Internal Revenue Code to require an individual taxpayer whose adjusted gross income exceeds $1 million to pay a minimum tax rate of 30% of the excess of the taxpayer's adjusted gross income over the taxpayer's modified charitable contribution deduction for the taxable year (tentative fair share tax). This rule will ensure that the 1 percent of Americans that are millionaire they will have to pay at least 30 of the income towards their taxes unless they are giving a large portion of the annually gross income to charity of their chose. This will pervert a large majority of the millionaires from getting through in loophole the system has. The proposal will not tamper with existing tax rates. Instead, under the proposal, those making more than $1 million a year would be required to calculate their overall tax rate, taking into account all their income and the full sum of what they pay in taxes. If that amount adds up to less than 30 percent, they would be required to make up the difference. The Buffett Rule would limit the degree to which the best-off can take advantage of loopholes and tax rates that allow them to pay less of their income in...

Words: 345 - Pages: 2

Premium Essay

Warren Buffett Case

...Warren Buffett is the role model to all investors; therefore, I believe what he believed in is right (at least to him). However,we need to understand that not all of his rules work for everyone. Buffett's first rules is not to lose. The second rule is not to forget the first rule. He is absolutely right about this because risk management is always the key to success in investing. I think that valuing a share based on its relative performance to similar shares is a good strategy to make sure the return on your investment. The comparison of an investment against other returns available in the market was an important benchmark of performance is a good point. Moreover, Buffett also said that we should invest based on sound research and a detached emotional state and not to become an emotional slave to day to day price fluctuation. Buffett also has his points when he said that we should not believe in Efficient Market Theory because the market does have efficient sometimes doesn't mean the market always have its efficient. The intrinsic value is another point that inspired me because I agreed with him about we should focus on the firm's future output but not the historical input. However, I slightly disagree that accounting reality is useless. It is because we can't tell a firm's financial health by just looking at the economic reality. I also think that his heavy focus on economic reality relies too heavily on subjective evaluation of intangible assets and sometimes future cash......

Words: 342 - Pages: 2

Premium Essay

Buffett Case Solution

...Berkshire Hathaway has made a bid for the remaining portion of GEICO stock. This report reviews the offer initiated by Warren Buffett. The details of this report include: • Valuation of GEICO stock. The $70 offer made by Warren Buffett and Berkshire Hathaway includes a 26% premium over the current GEICO stock price of $55.75. This report attempts to determine a range of appropriate stock prices for GEICO. Using the Gordon dividend discount model, along with historical dividend information and projections by Value Line, we estimate the value of GEICO stock in the range of $58 to $80. A review of historical growth rates in GEICO dividends also lends credibility to the investment’s future potential. • Review of Warren Buffett’s investment record. While our analysis lends credence to the bid price of $70 per share for GEICO, we also examine the historical record of Warren Buffett. Buffett’s investment success may add to shareholder’s comfort, as his track record is remarkable when compared to broader market results. • Buffett’s investment philosophy. A letter to shareholders gives us a unique look at Buffett’s considerations for investing. By reviewing his checklist, we attempt to gain insight as to why such a premium is included in the GEICO offer. • Other issues. Buffett’s position on GEICO’s board of directors may shed light on the amount of information Buffett had about the future prospects of GEICO. At first glance, there appears to be some support for a higher price for......

Words: 3090 - Pages: 13

Premium Essay

Warren Buffett Ceo Paper

...Warren Buffett Warren Buffett is well known for being a self-made billionaire. He started investing at the age of 11, where he bought three shares of Cities Service Preferred which he earned a small profit off of. He was disappointed to find that after he sold his shares for $40 each, they went up to $200 each. He later stated that it was a lesson to him to have patience with the stock market. Buffett started running his own small business as a paper boy when he was only 13 years old. He was also selling his own horseracing tip sheets. During high school, Buffett was still coming up with ways to make money. Buffett and his friend purchased a pinball machine for $25, installed it in a barber shop, and a few months later, had enough profit to purchase other machines. They installed two more machines in two other locations. Buffett and his friend later sold the business for $1,200. Buffett attended college at the University of Pennsylvania for two years studying business when he was just 16 years old. He then moved to the University of Nebraska to finish his degree. He finished school at age 20, with $10,000 from his childhood businesses. He decided to advance his degree and attended Colombia University. Just after he finished school, he formed the firm Buffett Partnership in his hometown of Omaha. He became very rich and was named “Oracle of Omaha”. His success came from buying undervalues companies whose stocks shortly began to rise. In 2006, Buffett donated all......

Words: 507 - Pages: 3

Premium Essay

Warren Buffett and Gillette

...Warren Buffett and Gillette Background of the Active Investor Warren Buffett is known as one of the world’s most notable investors. He is a self-made investor, now worth billions of dollars. Buffets premise is that people should base their investing on common sense and search out assets that are selling for less than they are worth (Pardoe, 2005). At an early age Buffett had a knack for making money. At six year old, Buffett made a five cent profit by purchasing a six-pack of Coca-Cola for twenty-five cent and reselling each bottle for a nickel. At eleven, he purchased three shares of Cities Service at $38 per share. Shortly after buying the stock, it fell to just over $27 per share (Kennon). When the shares rebounded to $40 he sold the shares, but regretted his actions when the shares shot up to $200. The experience taught him that patience is a virtue (Kennon). Buffett was a graduate of the University of Nebraska-Lincoln. Some time after graduation, Buffett had the opportunity to work for his mentor, Ben Graham, on Wall Street. There, he spent his day analyzing S&P reports, searching for investment opportunities (Kennon). He took a different interest than that of his mentor, he became interested in how a company worked, what made it superior to competitors and observed how the company was managed when deciding to invest; he was not interested in the corporate leadership of the companies he researched and invested in. In the mid-1950’s Buffett aligned......

Words: 3463 - Pages: 14

Premium Essay

Warren Buffett

...Jarett Burwell Seminar: Issues in Corporate Finance 9/18/14 1. The meaning behind the changes in the stock price for Scottish power on the acquisition announcement was the market reacting to the company being taken over by Warren Buffett and his company, which had a successful track record of managing companies into successful business strategies, the deal the had a positive effect on both buyers and sellers. The intrinsic value of PacifiCorp was the elephant that Warren Buffett was looking for because he was willing to pay a premium of $16.30 per share for the acquisition. 2. The possible values for PacifiCorp are: 1. Revenue median of $6.252 Billion, mean of 6.584 Billion. 2. EBIT median of 8.775 Billion, mean of 9.076 Billion. 3. EBITDA median of 9.023 Billion, mean of 9.076 Billion. 4. Net income median of 7.596 Billion, mean of 7.553 Billion. 5. ESP median of 4.277 Billion, mean of 4.308 Billion. 6. Book value median of 5.904 Billion, mean of 5.678 Billion. 3. I feel the amount of capital use to acquire PacifiCorp was worth the investment risk. The intrinsic value of PacifiCorp is that the company can now invest in a whole sector of the energy field. The value of PacifiCorp was in the actual business not the stock price and the extensive research that was done in understanding the energy industry made the acquisition safer. 4. Berkshire Hathaway has consistently outperformed the market since its creation in 1965. In 1977 the firms year-end closing......

Words: 623 - Pages: 3

Premium Essay

Warren Buffett History

...Buffett worked from 1951 to 1954 at Buffett-Falk & Co. as an investment salesman; from 1954 to 1956 at Graham-Newman Corp., as a securities analyst; from 1956 to 1969 at Buffett Partnership, Ltd. as a general partner and beginning in 1970 as Berkshire Hathaway Inc Chairman and CEO. By 1950, at 20, Buffett had made and saved $9,800 (over $96,000 inflation adjusted for the 2014 USD[22]).[23] In April 1952, Buffett discovered that Graham was on the board of GEICO insurance. Taking a train to Washington, D.C. on a Saturday, he knocked on the door of GEICO's headquarters until a janitor admitted him. There he met Lorimer Davidson, Geico's Vice President, and the two discussed the insurance business for hours. Davidson would eventually become Buffett's lifelong friend and a lasting influence,[24] and would later recall that he found Buffett to be an "extraordinary man" after only fifteen minutes. Buffett wanted to work on Wall Street, however, both his father and Ben Graham urged him not to. He offered to work for Graham for free, but Graham refused.[25] Buffett returned to Omaha and worked as a stockbroker while taking a Dale Carnegie public speaking course.[26] Using what he learned, he felt confident enough to teach an "Investment Principles" night class at University of Nebraska-Omaha. The average age of his students was more than twice his own. During this time he also purchased a Sinclair Texaco gas station as a side investment. However, this was not......

Words: 2987 - Pages: 12

Free Essay

Warren Buffett

...Saint Martin’s University Warren Buffett Photo Credit: Mark Seliger for TIME Warren Edward Buffett was born on August 30, 1930 in Omaha Nebraska to Howard and Leila Buffett. His father, Howard, was a stockbroker until elected into congress in 1942; his mother, Leila, was a homemaker. Warren Buffett is the middle child and only boy born to his parents. His sisters, Doris and Roberta, also make headlines with their generosity and successes. Photo Credit: Photo Credit: As a young boy Warren Buffett could be described as a math guru, he was able to calculate large tables of numbers in his head; a skill he still shows off today. Warren Buffett would often visit his father’s brokerage shop and write stock prices on the blackboard. Being so close to the industry allowed an 11 year old Warren Buffett to invest in three shares of Cities Service Preferred stock, costing him $38 per share. The shares dropped to $27 but he remained patient and waited for them to rise to $40 before selling for a small profit. Regrettably the stock soon rose to $200 but this didn’t faze young Warren Buffett, as he says “It was an early lesson in patience in investing.” ( At the age of 13 Warren Buffett ran a successful paperboy business where he filed his taxes and used his bike as a business deduction of $35. In high school Warren Buffett and a friend purchased a use pinball machine for $35 and installed it into a barbershop. The two were...

Words: 2779 - Pages: 12

Premium Essay

Buffett Summary

...Buffett Essays Summary Ch1 Corporate Governance 2 Ch2 Finance and Investing 5 Ch3 Investment alternatives 8 Ch4 Common stock 11 Ch5 Mergers and acquisitions 14 Ch6 Valuation and accounting 17 Ch7 Accounting shenanigans 19 Ch8 Accounting policy 21 Ch9 Tax matters 23 Ch1 Corporate Governance Mr. Buffett mentioned some problems existing in annual meetings and possible causes. In most situations, annual meetings are a kind of time waste for shareholders and management, because managers don’t want to express actual accounting conditions to others. Contrary to it, Berkshire’s meetings are different because many thoughtful questions would emerge and are valued to be answered. However, many people won’t be honest in these situations. Companies that provide information also hope to obtain information from other companies. There’s no doubt that people wish enough financial details to make some predictions. But more and more corporate choose “selective disclosure”, which is corrupt behavior about accepted by the whole America. Chairman Levitt cracked down on this kind of behavior. At the same time, Mr. Buffett doesn’t agree that CEO should make too many efforts to make too often predictions, which may cause trouble. For one thing, a much too high growth rate would spread unwarranted optimism. For another, announcing such a high rate might force companies to make some unwise decision. Three advices are provided to investors. Many occupations have their own......

Words: 5085 - Pages: 21

Premium Essay

Warren Buffett, 1995

...Warren E. Buffett, 1995, Case Questions The purpose of this case is to introduce the themes that we will be covering in this course. In fact, if you look at Buffett’s investment philosophy (question 3 below) and compare it to the syllabus, you will find extensive overlap. 1. What is the possible meaning of the changes in the stock price for GEICO and Berkshire Hathaway on the day of the acquisition announcement? Specifically, what does the $718 million gain in Berkshire’s market value of equity imply about the intrinsic value of GEICO? (Note that Berkshire owned 33.25 million shares before the acquisition was announced.) Geico stock price will move up on the day of the acquisition announcement. Meant, GEICO intrinsic value also increase, total value will be more than $718 million in the market. 2. How well has Berkshire Hathaway performed? In the aggregate? In its investment in Scott & Fetzer? In its investment in earlier purchases of GEICO stock? Scott & Fetzer conservatively financed with Berkshire Hathaway. Buffett offered to buy the company for $315 million. Scott and Fetzer paid Berkshire Hathaway $125 million. Buffett noted that in terms of return on book value of equity, Scott & Fetzer would have easily beaten the Fortune 500 firms. 3. Please critically assess Buffett’s investment philosophy, and prepare to identify points where you agree and disagree with him. Graham’s approach was to focus on the value of assets, such as cash, net......

Words: 397 - Pages: 2

Premium Essay

Warren Buffett

...Warren Buffett Motivation “When you’re associating with the people that you love, doing what you love, it doesn’t get any better than that.” — Warren Buffett The four motivational theories that were analyzed showed a similar element on how leaders can motivate their employees. It assumed the expectations and responsibilities of an employee in a company. Out of the four motivational theories, Warren Buffet has applied McGregor’s Theory Y to motivate his employees. Buffett strongly believes that trust is the main element to motivate employees. Buffett gives empowerment and responsibilities to his heads for them to take ownership over their work. He doesn’t always focus on earning money because the heads of his companies are almost millionaires; Buffett pays his people equally and fairly so that his employees don’t feel ripped off and put their trust in Buffett too. As he wants his managers to act like owners, therefore he treats his managers like owners. Buffett wants his employees to paint their own “picture” and find their own ways of doing things, he doesn’t want to stand behind his employees and tell them to “add blue or red into their picture” because then the employees would lose their creativity. This would also motivate the employees to produce a better work as the employees know they've got Buffett’s trust. I like Buffett’s way of motivating his employees as he used a very humble approach to his people. Everyone should speak up and share their ideas and......

Words: 943 - Pages: 4

Free Essay

Buffett 1999 Fortune Article

...NOVEMBER 22, 1999 FORTUNE The most celebrated of investors says stocks can't possibly meet the public's expectations. As for the Internet? He notes how few people got rich from two other transforming industries, auto and aviation. Mr. Buffett on the Stock Market l¥wren Buff'etl. chaimwn of Berkshire Hatha~t~ay, almost never talks publicly abolllthe generallel'e! of stock prices- neither in his famed report norm Berkshire~· thronged annual meetings nor in the rare speeches Ire gi11es. But in the past few nwnlhs, on four occasions, Buj}'ell did step up to that .whject, laying out his opinions. in ways both analytical and crcatiFe, about the long-tam future for stocks. FORTUNE's Carol Loornis heard lhe last of those talks, gi1•en in September to a group ojBuffett's jiiends (of whom site is one). and also watchul a videotape ofthe first speech, given in July at Allen & Co. 's Sun Valley, Idaho. bash for business leaders. From those extemporaneous talks (the first made with the Dow Jones indu.\·trial rlverage at 1 J./9.J), Loomis distilled the following account of what Buff wid. Buffett re1•iewed if and weighed in with ett some clarifications. nvestors in stocks these days arc expecting far too much, and I'm going to explain why. T hat wil l inevitably set me to talking about the genera l stock market, a subject I' m usua lly unwilling to discuss. But I want to make one thing clear going in: Though I will be talki ng about the level......

Words: 2203 - Pages: 9

Premium Essay

Warren Buffett 2005

...PacifiCorp increased Berkshire Hathaway’s intrinsic value. Background or Historical Perspective: Berkshire Hathaway was incorporated in 1889 as Berkshire Cotton Manufacturing and later merged with Hathaway manufacturing in 1955. In 1965, Warren Buffett and some partners gained control of Berkshire Hathaway. Buffett invested in companies from various sectors of the market ranging from insurance to clothing apparel. Over the next few decades since Buffett originally acquired Berkshire Hathaway, Buffett became famous as investment genius with an unbelievable growth percentage of 24%. Class A shares of Berkshire Hathaway traded at $102 in 1997 to $85,500 in 2005. Analysis and discussion: The stock price jump for both Berkshire Hathaway and Scottish Power plc means that investors are very optimistic about this move. The increase in Berkshire Hathaway’s market value of $2.55 billion means that the intrinsic value of PacifiCorp will add value to Berkshire Hathaway. The value of PacifiCorp ranges from $6.25 Billion to the $9.4 Billion paid to acquire PacifiCorp. The only aspect of this acquisition is why did Berkshire Hathaway pay so much for this acquisition? The only reason why Berkshire Hathaway would pay so much for an acquisition is that Buffett perceive PacifiCorp’s intrinsic value as more than $6.25 Billion. Berkshire Hathaway has performed extremely well with an annual growth percentage of 24%. By comparing Berkshire Hathaway’s Class A stock with the S&P 500......

Words: 530 - Pages: 3

Free Essay

Warren Buffett

...31ක !  .. ඔහ අවසන වශෙයන තරැණ පරපර සඳහා අවවාද හ    ු පයක ෙදන  නටත  අමතක කෙළ නෑ..  ණය කා පත වලන ෙදන    න... ආෙයජනය කරන න... 1.  දල වලන ෙසක තැය ෙනාහෑ. මතක තබා ගන ම     න...  දල ම  මාණය කෙල සා !!!  2. සරල තයක ගත කරන  න. 3. අනනට උවමනා ෙද අසා සන ඔබට උවමනා ෙද , ෙහාඳ යැ සෙතන  ි න. ි ෙදම කරන න. 4. ෙවලඳ නාම වලට ෙනාවෙටන ඔබට ව පහස ෙද අන පලන න. ස  න න. 5. අනවශ ෙදට යද කරන  දල අවශතා ඇෙයක පතග ම , ට කරන න. 6. ඔෙ තය... ඔෙ දහෙස ෙගවන ් න... අෙනෙකක ඔබ පාලනය ට මට ඉඩක ෙනාතබන  න... ෙලකෙය සත ම ෙවෙසන  සත ෙලකෙය ෙහාඳම හැමෙද ෙගාඩ ගසා ් න නන ව ් නැත... ඔවන සත ු  ෙටන සෙ රහස ඔවන ඔවන සත ෙද අගය ම සහ ි ු  ු   සෑහ මට පත ම...  ෙ සන  , ෙලකෙය ෙදවන ප ධනවතා Warren Buffett !!!!!! මටත ි ෙන ් සි  හ ෙතනවා... ඔහ ධනවත !!! ෙලකෙය හැමෙකෙනක   ් ටම වැය.... ෙහ ව ඔහ ත  ලඟා ෙකාට ෙගන සන සරල, සාමකා සැනසල යක තය අන ඔහ ි ි   ඉතා ෙපාෙහාසත සා....  ...

Words: 761 - Pages: 4

Premium Essay

Warren Buffett

...Warren Buffett is an American business magnate, investor, and philanthropist. He is one of the most successful investors in the world besides always be introduced as “legendary investor”. Furthermore, he is also one which is ranked among the world’s wealthiest people. In 2008, he was the world’s wealthiest person but his ranking was dropped and he was the third wealthiest person in world as of 2011. “Wizard of Omaha”, “Oracle of Omaha” or “Sage of Omaha” are the names those calls Warren Buffett. Warren Buffett is famous with his adherence to the value investing philosophy and his frugality despite his large wealth. Warren Buffett is also a popular philanthropist which has pledged to give 99 percent of his fortune to philanthropic causes, for example of the Gates Foundation. Warren Buffett was born on August 30, 1930. He is the only son to Howard which is a stockbroker-turned-Congressman. Warren Buffett began his education at Rose Hill Elementary School in Omaha. He continued his education at Alice Deal Junior High School after finished elementary school. In 1947, he was graduated from Woodrow Wilson High School. He was excellent in managing money and business at a very early age. When Warren Buffett was only six years old, he purchased 6 packs of Coca Cola from his grandfather’s grocery store with price of twenty five cents and resold each of the bottles for a nickel with earning five cents. When Warren Buffett was eleven years old, he bought three shares of Cities......

Words: 442 - Pages: 2

Było sobie życie / Il Était une fois... la vie | Minami-ke 88 | Softwares