Warren E. Buffett‚ 2005 Teaching Note Synopsis and Objectives Suggested complementary case about investment managers and superior performance: “Bill Miller and Value Trust” (Case 2). Set in May 2005‚ this case invites the student to assess Berkshire Hathaway’s bid‚ through MidAmerican Energy Holdings Company‚ its wholly owned subsidiary‚ for the regulated energy-utility PacifiCorp. The task for the student is to perform a simple valuation of PacifiCorp and to consider the reasonableness
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is terminal value a material component of firm values? 2. Drawing on case Exhibit 4 and your own general knowledge‚ where would the various estimators be appropriate? Where would they be inappropriate? (Simon’s second task) 3. Regarding the cash flow forecasts in case Exhibit 5‚ at what point in the future would you set the forecast horizon for the three investments? Why? More generally‚ what should determine when you stop forecasting annual cash flows and estimate a terminal value? 4. Estimate
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Principles of Banking and Finance: Single Cashflow 1. Present Value (PV) * the value on a given date of a payment or series of payments made at other times (past or future) * Discounting from the future * Value at t=0 on a given time line (“t” is the period‚ ranging from 0 to n where “n” being the last period). * Net Present Value (NPV): PV after deducting all the costs 2. Future Value (FV) * The amount to which a specific sum and /or series of payments will grow on a given
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expected deposit is at 65 years‚ then annual deposits will be made for 30 years. Expected annual withdrawals are $90‚000 for 15 years from the retirement fund with a bank that offers compound interest of 8% annually. Calculation Present value (PV) =? Future value (FV) = (90‚000*15) = $1‚350‚000 Periodic payment amount (PMT) =? Interest rate per period (Rate) = 8% or 0.08 Number of payment periods (Nper) = 30 Using the Excel function “PV”‚ the following data is entered into the presented fields
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Critical Thinking Questions 6.1 Identify the steps involved in computing the future value when you have multiple cash flows. First‚ prepare a time line to identify the size and timing of the cash flows. Second‚ calculate the present value of each individual cash flow using an appropriate discount rate. Finally‚ add up the present values of the individual cash flows to obtain the present value of a cash flow stream. This approach is especially useful in the real world where the cash flows for each
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a truly comparable large sample of firms. Multiples analysis isbackward-looking‚ reliant on historical/current data to obtain multiples. It reflectsrelative value rather than the intrinsic value which DCF valuation produces.DCF analysis generates an intrinsic value as it relies on data specific to the firm. DCFanalysis factors in time value of money‚ and thus is a forward-looking measure.However‚ there is uncertainty in forecasting future revenues‚ especially for privatefirms and those firms that
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firms. How is this possible? Does this violate our basic principle of stock valuation? Explain. Our basic principle of stock valuation is that the value of a share of stock is simply equal to the present value of all of the expected dividends on the stock. According to the dividend growth model‚ an asset that has no expected cash flows has a value of zero‚ so if investors are willing to purchase shares of stock in firms that pay no dividends‚ they evidently expect that the firms will begin paying
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Question 1 (5 points) $50 today is worth MORE than $50 tomorrow. Your Answer Score Explanation True ✔ 5.00 Correct. You understand Time value of money. False Total 5.00 / 5.00 Question Explanation We have assumed time value of money is positive. Question 2 (5 points) At an interest rate of 10% it is better to have $100 today than $120 in 2 years. Your Answer Score Explanation True ✔ 5.00 Correct; it is compounding! False Total 5.00 / 5.00 Question
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Capitalisation without growth Earnings Capitalisation with growth Price-Earning Multiple Model 3. Free Cash Flow Models Discounted Free Cash Flow to Equity (FCFE) model Discounted Free Cash Flow to the Firm (FCFF) model 4. Book Valuation (Net Asset Value) Model Discounted Dividend Model The dividend discount model (DDM) is a method of valuing a company based on the theory that a stock is worth the
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1. How does Ben ’s age affect his decision to get an MBA? Age will be an important factor affecting his decision of getting an MBA course in multiple ways. After graduated six years ago‚ time has been taken off from education and invested into his career. Keeping on risingwith age and six years break from education‚ it will not only be more difficultto concentrate and remain good attitude towards studies‚ but also keep family and work responsibilities. Moreover‚ he would have only approximately
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