Warren Buffet Case Study Essay Example for Free

Warren Buffet Case Study EssayExecutive SummaryOn whitethorn 24, 2005, it was announced that Berkshire Hathaway would acquire PacifiCorp. from parent, Scottish Power, for $5.1 billion in cash and $4.3 in liabilities and preferred stock (Bruner, Eades, Schill). later on the announcement of the encyclopaedism, the market responded very positively the same day. Berkshires stock price had affixd by 2.4%, PacifiCorp.s parent, Scottish Powers by 6.28% and SP 500 closed up 0.02%. Berkshire Hathaways 2.4% shares increase was equivalent to $2.55 billion. Since this is not consistent with results of other acquirements of the same order, it must be Warren Buffets cult-like following that allows this to happen. Rather than rationally studying the market information of the acquisition, the general public puts their curse in Warren Buffett as an coronation guru. Berkshire held many different types of industries in their portfolio, but prior to the acquisition of PacifiCorp., Berkshire di d not claim signifi masst investment in the energy sector.The now more diversified investment portfolio of Berkshire after the acquisition was expected to provide more stable returns. Often throughout the case study, Buffetts view on a conjunctions unalienable rank was spotlighted as one of his preponderant investing strategies. Book range and the investment outline are the two alternatives to intrinsic value. Buffett rejects them because these alternatives neither can give clear and accurate information about the expected profit in the investment. A companys intrinsic value, though, is a companys value relative to the present value of its discounted hereafter cash flows (Bruner, Eades, Schill). And this is how Buffett evaluates his investments, asking will future cash flows provide an acceptable return on investment. caperThe primary problem in the Warren Buffett case study would be whether or not the intrinsic value of PacifiCorp. justifies Berkshire Hathaways bid price? Se condary problems presented include how does the PacifiCorp. acquisition stand up against Berkshires elephant only approach to investing? Thus, whether or not PacifiCorp.s acquisition would be able to advance Berkshires already staggering annual growth rate of 24%?AnalysisDrawing from the financial statements in the texts exhibits, PacifiCorp.s annual operating cash flows equaled $1.76 billion. Given this calculation, it would seem as though it would be a relatively short time before Berkshire Hathaway would accumulate enough value on the acquisition for them to receive an expedient return on their investment. The cost of lost opportunity is a philosophy of Warren Buffetts that also applies to this case (Bruner, Eades, Schill). By entering into the energy market with the acquisition of PacifiCorp., the firm can hopefully continue on their incredible growth rate trend. Without it, Berkshire would likely have eventually plateaued.RecommendationIt is advised that Berkshire Hathaway fo llow through with the acquisition of PacifiCorp. The firm will continue to speech rhythm large sums of cash flows through their company with this deal, therefore inducing growth and also adding intrinsic value to their firm. The firm also has a lot to gain by entering into the energy market, which already has a stronghold on American interests and adds diversity to their portfolio.