BUSI 692 Financial Management Research Paper

BUSI 692 Financial Management Research Paper

Instructions/Descriptions

BUSI 692 Financial Management Research Paper

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Case Introduction/Overview

Set in August 2015, this case invites students to assess Berkshire Hathaway’s bid for Precision Castparts Corporation (PCP). The task for students is to perform a simple valuation of PCP and to consider the reasonableness of Berkshire Hathaway’s offer.

Student analysis readily extends to the investment philosophy and the remarkable record of Berkshire Hathaway’s chair and CEO, Warren E. Buffett. The case is intended to be used as an introduction to a finance course or as a module on capital markets. The analytical tasks are straightforward and are intended to provide a springboard into a discussion of the main tenets of modern finance.

Case Report Instructions

This is a “Directly answer a set of questions” case report. For this introduction case study, answer each of the following questions (as per the guidelines in “Learning with Cases and Writing Case Reports”).

1. Who is Warren E. Buffett? How would you describe the business of Berkshire Hathaway?
2. How well has Berkshire Hathaway performed? Over the long term? Recently?
3. What is your assessment of Berkshire Hathaway’s investments in Buffett’s largest equity positions shown in case Exhibit 5? Has he been uniformly successful in making major investments?
4. Describe the key elements of Buffett’s investment philosophy. How might this philosophy differ from that of other investment styles, such as a very active day trader, a chart watcher, or someone who passively invests in index funds?
5. From Buffett’s perspective, what is intrinsic value? Why is it accorded such importance? How is it estimated? What are the alternatives to intrinsic value? Why does Buffett reject them?
6. Critically assess Buffett’s investment philosophy. Identify points where you agree and disagree with him.
7. What is the possible meaning of the changes in stock price for Berkshire Hathaway on the day of the acquisition announcement? Specifically, what does the $4 billion loss in Berkshire Hathaway’s market value of equity imply about the intrinsic value of Precision Castparts (PCP)?
8. Should Berkshire Hathaway’s shareholders endorse the acquisition of PCP?

NOTE: You can access a student spreadsheet file that you might find helpful for this case on the textbook website found at the following link:

http://highered.mheducation.com/sites/1259277194/student_view0/index.html

This directory contains Excel spreadsheet files with the primary exhibits for this case. Some of the Excel tables exercisable models which will allow you to test ideas with minimum setup time.

From the Professor

BUSI 692 Financial Management Research Paper

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