Reference no: EM131020177
Berkshire Challenge Warren Buffett has asked you to evaluate two possible companies for acquistion by Berkshire-Hathaway. respond to the following questions: Astro Pharmaceutical Corporation One possible acquisition is a privately held company in an established (mature) industry. Astro Pharmaceutical Corporation is a pharmaceutical company.
Relevant Financials are:
Free cash flow for the past year was $2,000,000.
The company has a WACC of 10%.
Outstanding shares: 50,000
Expected yearly growth at 6%
Assets:
Liabilities and stockholders’ equity:
Book value of Long term debt: $500,000
Book value of the firm’s equity: $500,000
What is the value of the firm?
What is the market value of the firm’s equity?
What is the firm’s MVA?
What is the firm’s stock price?
B. General Hospital
A second possible is General Hospital, a health care company is
operating in a rapid growth industry.
Relevant financials:
Free cash flow for the past year was $10,000,000
The company’s WACC is 20%
Outstanding shares 150,000
Expected yearly growth at 4%
Assets:
Book value of long term debt: $2,000,000
Book value of equity: $20,000,000
What is the value of the firm?
What is the market value of the firm’s equity?
What is the firm’s MVA?
What is the company’s stock price?
Please discuss in detail how Warren Buffett might evaluate these proposed takeovers:
Which company he would prefer and why,
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