Complete Solutions Manual for Case Studies in Finance, 8th Edition By Robert Bruner, Kenneth Eades and Michael Schill ; ISBN13: 9781259277191.
1.Warren E. Buffett, 2015.
2.The Battle for Value, 2016: FedEx Corp. vs. United Parcel Service, Inc.
3.Larry Puglia and the T. Rowe Price Blue Chip Grow...
Case Studies in Finance
8th Edition
By Robert Bruner
Complete Case Studies Solutions
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, Warren E. Buffett, 2015
Teaching Note
Synopsis and Objectives
Set in August 2015, this case invites students to assess Berkshire Suggested complementary case
Hathaway’s bid for Precision Castparts Corporation (PCP). The task for about investment managers
students is to perform a simple valuation of PCP and to consider the and superior performance:
reasonableness of Berkshire Hathaway’s offer. Student analysis readily “Larry Puglia and the T. Rowe
extends to the investment philosophy and the remarkable record of Price Blue Chip Growth Fund”
Berkshire Hathaway’s chair and CEO, Warren E. Buffett. (UVA-F-1772).1
The case affords an introduction to a finance course or a module on
capital markets. The analytical tasks are straightforward and intended to provide a springboard into discussion
of the main tenets of modern finance. Thus the case would be useful for:
• Setting themes at the beginning of a finance course, including risk and return, economic reality (not
accounting reality), the time value of money, and the benefits of alignment of agents and owners.
• Linking valuation to the behavior of investors in the capital market.
• Modeling good practice in management and investment using Buffett as an example by returning to the
image of him repeatedly during a finance course to ask students what Buffett would likely do in a
situation.
• Characterizing intrinsic value as equaling the present value of future equity cash flows.
• Exercising simple equity-valuation skills by focusing on Buffett’s investment philosophy, basic principles of
value creation, and multiples-valuation information provided in the case.
• Exercising more advanced equity-valuation skills by estimating capital costs, a terminal value, and the
discounted cash flow value from information in the case and teaching note. Used in this fashion, the
case could be positioned later in the course as a basic introduction to methods of valuing a firm. This
1 Kenneth M. Eades and Dorothy Kelly, “Larry Puglia and the T. Rowe Price Blue Chip Growth Fund,” UVA-F-1772 (Charlottesville, VA: Darden
Business Publishing, 2017).
, Page 2 UVA-F-1769TN
could be accomplished by distributing this note along with focused assignment questions (discussed
below).
Suggested Questions for Advance Assignment
Where this case is to be used in an introductory class, the instructor could assign these questions for
advance preparation by the students:
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. Prepare to describe the 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. Be prepared to 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?
If the instructor chooses to engage the students in a valuation exercise regarding PCP, the following questions
could be distributed in advance along with the supplemental information given in Exhibit TN1. Also,
spreadsheet models for the student (UVA-F-1769X) and instructor (UVA-F-1769TNX) support the DCF
valuation work.
9. Based on the multiples for comparable companies, what is the range of possible values for PCP? What
questions might you have about this range?
10. Please forecast and discount the free cash flows to estimate the value of PCP. To do this, you should
estimate PCP’s weighted-average cost of capital (WACC).
11. Assess the bid for PCP. How does it compare with the firm’s intrinsic value?
Suggested Supplemental Readings
As the case indicates, there is a growing library of books and articles about Buffett and his investment style.
The instructor may choose to assign readings from one or more of the publications listed in Exhibit TN2.
Alternatively, it may be appropriate simply to share the list of books with students to illustrate the breadth of
scholarship and reportage about the Sage of Omaha, Warren Buffett.
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