Warren Buffet, 2005 Case Study

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Net present value for the market value
The actual value of a security, as opposed to its market price or book value. The intrinsic value includes other variables such as brand name, trademarks, and copyrights that are often dificult to calculate and sometimes not accurately reflected in the market price. One way to look at it is that the market capitalization is the price (i.e. what investors are willing to pay for the company) and intrinsic value is the value (i.e. what the company is really worth).

1. Market reacted positively to the acquisition. This is shown by the increase in share price by 2.4% and gain in market value of $2.55 billion for Berkshire Hathaway’s Class A stock. Scottish Power’s share price also jumped 6.28% on the news; the S & P 500 Composite Index closed up 0.02%. This shows consumers’ confidence in the company in the long-term.

The $2.55 billion gain in Berkshire’s market value of equity imply that the stock was undervalued and went up to its intrinsic value. Intrinsic value = 5.122

Add calculation to Powerpoint.

Total share value = 1.06 billion or 837.41 per share
2. Low= $28.68
High = $34.58

3. Berkshire Cotton Manufacturing was a large success at it’s inception in 1889. Becoming the United States leading textile producers, it quickly accounted for 25% of the US’s cotton textile production. In 1955, Berkshire merged with Hathaway Manufacturing. Due to rising economic changes, the company started a secular decline.

Over the next 20 years, with the guidance of Buffet, Berkshire Hathaway would become a financial empire. After acquiring different facets of business, Berkshire Hathaway has been able to consistently increase the company’s overall value. Currently, Berkshire is performing well.

Share PriceS&P
1977 = $102$96
2005 = $85,500$1,194

Berkshire completely dominated the market. Annual Berkshire was 24%, while the annual average total return of all stocks was 10.5%. We can see that...
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