3 Case 1 Warren E.

Buffet, 2005
WARREN E. BUFFETT, 2005
Teaching Note
Synopsis and Objectives
Set in May 2005, this case invites the stuent to assess Ber!shire "atha#ay$s %i, through
Mi&'erican Energy "o(ings Co')any, its #ho((y o#ne su%siiary, for the regu(ate energy*
uti(ity +acifiCor). The tas! for the stuent is to )erfor' a si')(e va(uation of +acifiCor) an to
consier the reasona%(eness of Ber!shire$s offer. Stuent ana(ysis reai(y e,tens into the
invest'ent )hi(oso)hy an the re'ar!a%(e recor of Ber!shire$s chair an CE-, Warren E.
Buffett.
The case is an introuction to a finance course or a 'ou(e on ca)ita( 'ar!ets. The
ana(ytica( tas!s are straightfor#ar an intene to )rovie a s)ring%oar into iscussion of the
'ain tenets of 'oern finance. Thus, the case #ou( %e usefu( for.
setting themes at the %eginning of a finance course, inc(uing ris!*an*return, econo'ic
rea(ity /not accounting rea(ity0, the ti'e va(ue of 'oney, an the %enefits of a(ign'ent of
agents an o#ners
linking valuation to the behavior of investors in the ca)ita( 'ar!et
modeling good practice in 'anage'ent an invest'ent using Warren Buffett as an
e,a')(e %y returning to the i'age of Buffett re)eate(y uring a finance course to as!
stuents #hat Buffett #ou( (i!e(y o in a situation
characterizing stock prices as e1ua(ing the )resent va(ue of future e1uity cash f(o#s
exercising simple equity-valuation skills
Whi(e the nu'erica( ca(cu(ations in the case are si')(e, novices #i(( fin it to %e a 'eaty
introuction to a nu'%er of i')ortant conce)ts in finance. 2ea((y, the case cou( %e )ositione
Suggested
complementary case
about investment
managers and superior
performance: 3Bi(( Mi((er
an 4a(ue Trust5
/Case 20.
6 Case 1 Warren E. Buffet, 2005
near the %eginning of a course or 'ou(e, after #hich it can %e reinforce %y other cases an
e,ercises.
5 Case 1 Warren E. Buffet, 2005
Suggested Questions for Advance Assignment
1. What is the )ossi%(e 'eaning of the changes in stoc! )rice for Ber!shire "atha#ay an
Scottish +o#er )(c on the ay of the ac1uisition announce'ent7 S)ecifica((y, #hat oes
the 82.55 %i((ion gain in Ber!shire$s 'ar!et va(ue of e1uity i')(y a%out the intrinsic va(ue
of +acifiCor)7
2. Base on the 'u(ti)(es for co')ara%(e regu(ate uti(ities, #hat is the range of )ossi%(e
va(ues for +acifiCor)7 What 1uestions 'ight you have a%out this range7
3. &ssess the %i for +acifiCor). "o# oes it co')are #ith the fir'$s intrinsic va(ue7 &s an
a(ternative, the instructor cou( suggest that stuents )erfor' a si')(e iscounte cash*
f(o# /9C:0 ana(ysis.
6. "o# #e(( has Ber!shire "atha#ay )erfor'e7 "o# #e(( has it )erfor'e in the
aggregate7 What a%out its invest'ent in Mi&'erican Energy "o(ings7
5. What is your assess'ent of Ber!shire$s invest'ents in Buffett$s Big :our. &'erican
E,)ress, Coca*Co(a, ;i((ette, an We((s :argo7
<. :ro' Warren Buffett$s )ers)ective, #hat is the intrinsic va(ue7 Why is it accore such
i')ortance7 "o# is it esti'ate7 What are the a(ternatives to intrinsic va(ue7 Why oes
Buffett re=ect the'7
>. Critica((y assess Buffett$s invest'ent )hi(oso)hy. Be )re)are to ientify )oints #here you
agree an isagree #ith hi'.
?. Shou( Ber!shire "atha#ay$s shareho(ers enorse the ac1uisition of +acifiCor)7
Suggested Supplemental Readings
&s the case inicates, there is a gro#ing (i%rary of %oo!s an artic(es a%out Buffett an his
invest'ent sty(e. The instructor 'ay choose to assign reaings fro' one or 'ore of the
)u%(ications (iste in Exhibit T!. &(ternative(y, it 'ay %e a))ro)riate si')(y to share the (ist of
%oo!s #ith stuents to i((ustrate the %reath of scho(arshi) an re)ortage a%out the Sage of
-'aha, Warren Buffett.
Suggested Teaching "lan
The fo((o#ing 1uestions cou( %e use to 'otivate a @0*'inute iscussion of the case.
1. What does the stock market seem to be saying about the acquisition of PacifiCorp by
Berkshire Hathaay!
This o)ening offers the o))ortunity to eve(o) the notion that stoc! )rices are the )resent
va(ue of e,)ecte cash f(o#s. Moreover, it ea(s #ith the i''eiate o)ening )ro%(e' of
< Case 1 Warren E. Buffet, 2005
the case. the 'ar!et$s res)onse to the +acifiCor) announce'ent. :ina((y, it shou( he() to
'otivate a iscussion of Buffett$s invest'ent )hi(oso)hy.
2. Based on your on analysis" hat do you think PacifiCorp as orth on its on before
its acquisition by Berkshire!
This 1uestion e,)ans u)on the o)ening 1uestion an he()s ee)en the 'ystery a%out the
ac1uisitionAthe %i )rice see's to %e a fair(y fu((*)rice offer for +acifiCor).
3. Well" maybe Buffett is overpaying#does he have a record of overpaying in the past!
"ere, the iscussion shou( shift to an ana(ysis of Ber!shire$s genera( recor, its
e,)erience #ith Mi&'erican, an its e,)eriences %uying e1uity )ositions in the Big :our.
The genera( conc(usion #i(( %e that Buffett has one very #e(( as an investor an as the
'anager of Ber!shire.
6. Here are the ma$or elements of Buffett%s philosophy& What do those elements mean! 'o
you agree ith them!
-n a sie%oar, one cou( (ist the 'a=or to)ic heaings given in the case. The ai' here
shou( %e to iscuss the intuition %ehin each )oint. #hy Buffett ho(s those vie#s an
#hat they i')(y for his #or!. 2f the stuents a(reay have %een e,)ose to the 'a=or
uner)innings of 'oern finance, this seg'ent of the iscussion #ou( ta!e the for' of a
1uic! revie#. :or novices, this seg'ent #ou( #arrant s(o#er eve(o)'ent.
5. (et%s return to the basic issue& )s the PacifiCorp acquisition a good or bad deal! Why!
This 1uestion returns the iscussion to the o)ening an ai's to rationa(iBe so'e of the
contraictions that #i(( have e'erge uring c(ass. The 'ain contraiction is the fu(( )rice
an the )ositive 'ar!et reaction to the announce'ent. &s a va(ue investor, Buffett #ou(
)ro%a%(y say that he sees so'ething that others o notAthe )ositive 'ar!et reaction is
=ust the 'ar!et revising its e,)ectations a%out the future )rofita%i(ity of +acifiCor).
<. *ake a vote on hether the shareholders should endorse the acquisition& +or those of you
ho believe that PacifiCorp ill be a good purchase" hat $ustifies your belief! +or
those of you ho voted no" hy did you oppose it!
"earing fro' %oth sies #i(( serve as a su''ary of the 'a=or the'es in the case an #i((
invite a iscussion a%out the sustaina%i(ity of Buffett$s recor.
The instructor cou( c(ose #ith a iscussion of the core tenets of finance an then iscuss
ho# the c(ass #i(( return to those the'es re)eate(y uring the course. The instructor cou( a(so
aug'ent the iscussion of tenets #ith 'ore reaing of 'ateria( a%out Buffett. :ina((y, stuents
cou( %e u)ate on Ber!shire "atha#ay$s )erfor'ance since the ate of the case. See the fir'$s
We% site, htt).CC###.%er!shirehatha#ay.co', for u)ate re)orts as #e(( as a co')i(ation of
Buffett$s (etters to shareho(ers.
> Case 1 Warren E. Buffet, 2005
#ase Analysis
$nvestor reaction to the "acifi#orp announcement
The investor reaction suggests that the ea( #i(( not on(y create va(ue for +acifiCor)$s
ac1uirer, Ber!shire "atha#ay, %ut a(so for the se((er, Scottish +o#er. 2n fact, as a re(ative 'atter,
it #ou( a))ear that the 'ar!et sees 'ore va(ue accruing to Scottish +o#er %ecause of its
ivestiture of +acifiCor) than to Ber!shire, as a resu(t of its ac1uisition of the co')any. Stuents
cou( %e encourage to consier #hy this 'ight %e so /i.e., #hy Scottish +o#er #ou( see' to
gain 'ore %enefit fro' the ea( than Ber!shire "atha#ay0.
The 82.55 %i((ion increase in Ber!shire "atha#ay$s 'ar!et va(ue inicates an e,)ecte
%enefit to Ber!shire fro' the ac1uisition. So'e stuents #i(( 'easure the e,tent of this %enefit as
a gain of 82.55 %i((ion in Ber!shire$s 'ar!et va(ue of e1uity ivie %y +acifiCor)$s 312.1? 'i((ion
shares outstaning or 8<.@5 )er +acifiCor) share more than Buffett is )aying. Ber!shire is offering
85.1 %i((ion in cash for +acifiCor)$s e1uity, for a )er*share )rice of 81<.36D a(together, this #ou(
i')(y a )er*share e,)ecte va(ue for +acifiCor)$s shares of 823.2@. 2s this a fair esti'ate of
+acifiCor)$s intrinsic va(ue7 Stuents 'ust )erfor' their o#n va(uation of +acifiCor) in orer to
arrive at an ine)enent =ug'ent a%out this va(ue.
%aluation of "acifi#orp
Because +acifiCor) is a )rivate(y he( co')any that oes not )ay a
ivien, the case oes not contain enough infor'ation to erive a va(uation for
+acifiCor) using 'ar!et va(ues or the ivien iscount 'oe(. 2t is necessary,
therefore, to re(y on an i')(ie va(uation for the fir' using 'u(ti)(es fro'
co')ara%(e regu(ate uti(ities. Case E,hi%it @ )rovies financia( ata for the co')ara%(e fir's,
an case E,hi%it 10 )resents i')(ie va(uations for +acifiCor) using averages an 'eians of
those fir's$ 'u(ti)(es. Table ! )resents a su''ary of the range of va(uations )rovie in the case.
Ta%(e 1. Su''ary of +acifiCor) va(uation esti'ates.
Enterprise %alue as &ultiple of. &% E'uity as &ultiple of:
Rev( E)$T E)$T*A
et
$ncome E"S )oo+ %alue

<,252 ?,>>5 @,023 >,5@< 6,2>> 5,@06
<,5?6 @,2?@ @,0>< >,553 6,30? 5,<>?
9iscussion
1uestion 1
9iscussion
1uestions 2
an 3
? Case 1 Warren E. Buffet, 2005
Because the case states that it #ou( ta!e 12 to 1? 'onths for the ea( to ac1uire
+acifiCor) to c(ose, the instructor 'ay #ish to so(icit a )resent va(ue for Ber!shire "atha#ay$s
offer for the e1uity )ortion of +acifiCor). &n a))ro)riate iscount rate 'ay %e erive using the
ca)ita( asset )ricing 'oe( /C&+M0. :ootnote 13 in the case e,)(ains that the yie( on the 30*year
E.S. Treasury %on #as 5.><F an that Ber!shire$s %eta #as 0.>5, an the case states that the
(ong*run 'ar!et return #as 10.5F. So Ber!shire$s cost of e1uity 'ay %e esti'ate as @.32F.
Esing this rate to iscount Ber!shire$s 85.1 %i((ion offer over 12 or 1? 'onths, #e get a )resent
va(ue of a%out 86.> %i((ion.
Ber!shire$s offer for +acifiCor) #as, therefore, rough(y in (ine #ith the range of )eer fir'
va(uations. This oes not e,)(ain #hy the 'ar!et reacte so )ositive(y to the ne#s of the
ac1uisition. 2t is )ossi%(e that the investors )erceive )otentia( synergies %et#een +acifiCor) an
Mi&'erican, %ut in the high(y regu(ate an regiona((y focuse e(ectric*uti(ity %usiness, such
synergistic %enefits 'ay %e #ea!. Was there )erha)s so'ething in Buffett$s recor as an investor
that (e to the 'ar!et$s res)onse7
)uffett,s record
The case affors three o))ortunities to ana(yBe Ber!shire "atha#ay$s historica( recor.
Berkshire Hathaay%s historical ealth creation. The case offers a range of evience
a%out shareho(er #ea(th creation at Ber!shire "atha#ay. The case gives a rate of 26F
co')oun annua( gro#th in stoc! )rices fro' 1@<5 to 1@@5. 2n co')arison, #ea(th creation for
(arge fir's average 10.5F )er year over the sa'e )erio. The first chart in the case he()s
stuents visua(iBe the su)ernor'a( )erfor'ance of Ber!shire "atha#ay. Novices to finance shou(
%e encourage to consier ho# ifficu(t it is to %eat the 'ar!et %y such a #ie 'argin.
Berkshire%s experience ith ,id-merican. 9ata in the case an case E,hi%it < give
infor'ation #ith #hich to )erfor' a si')(e ana(ysis of Ber!shire$s return on invest'ent in
Mi&'erican. Beginning in 2000, Ber!shire "atha#ay 'ae an out(ay of 81.<62 %i((ion for an
eventua( ?0.5F econo'ic interest in Mi&'erican. Ber!shire$s econo'ic interest in
Mi&'erican #as co')ose of %oth e1uity an e%t invest'ents such that the cash f(o#s to
Ber!shire inc(ue interest )ay'ents, co''on iviens, an )referre iviens. Therefore,
Ber!shire$s return on invest'ent can %e a))ro,i'ate %y co')uting Ber!shire$s share of
Mi&'erican$s free cash f(o#s, the cash f(o#s avai(a%(e to a(( e%t an e1uity c(ai's. The inco'e
state'ent an %a(ance sheet ata in case E,hi%it < 'ay he() us erive Ber!shire$s share of
Mi&'erican$s free cash f(o#s fro' 2001 to 2006, revea(ing that Ber!shire ha an interna( rate of
return /2GG0 on this invest'ent of >1F. Exhibit T- )resents those ca(cu(ations.
9iscussion
1uestions
6 an 5
@ Case 1 Warren E. Buffet, 2005
Berkshire%s experience ith equity investments. The ata in case E,hi%it 3 give a
founation for a si')(e assess'ent of the 'a=or e1uity invest'ents %y Ber!shire. With a c(ass of
novices, the instructor cou( 'otivate the' to o%serve that a(( those issues have 'ar!et va(ues
consiera%(y higher than their costs. With a c(ass of stuents 'ore e,)erience in finance, it #ou(
%e )ossi%(e to esti'ate a ho(ing*)erio return for Ber!shire$s invest'ents in the Big :our. Esing
the infor'ation in this e,hi%it an its footnote, #e fin that Ber!shire$s invest'ents in &'erican
E,)ress, Coca*Co(a, ;i((ette, an We((s :argo generate a co')oun annua( gro#th rate of
1<.0>F. Stuents cou( %e encourage to co')are this return #ith the (ong*ter' return for a((
(arge stoc!s, 10.5F.
)uffett,s $nvestment "hilosophy
Buffett$s invest'ent )hi(oso)hy reas 'ost(y (i!e a su''ary of the theory of 'oern
finance. &s the su%heaings in the case inicate, the e(e'ents of the )hi(oso)hy are as fo((o#s.
1. Econo'ic rea(ity, not accounting rea(ity
2. &ccount for the cost of the (ost o))ortunity
3. :ocus on the ti'e va(ue of 'oney
6. :ocus on #ea(th creation
5. 2nvest on the %asis of infor'ation an ana(ysis
<. The a(ign'ent of agents an o#ners is %eneficia( to fir' va(ue
Buffett strong(y isagrees, ho#ever, #ith three other e(e'ents of 'oern finance.
1. .se of risk-ad$usted discount rates. The 'etho he uses see's rather si'i(ar to the
certainty e1uiva(ent a))roach to va(uation /i.e., iscount certain cash f(o#s at a ris!*free
rate0. &(though it see's ou%tfu( that the cash f(o#s he iscounts are tru(y certain, the
very fact that he 'atches ris!(ess cash f(o#s #ith a ris!*free iscount rate i')(ies an
a))roach consistent #ith the ris!*an*return (ogic of the C&+M.
2. Benefits of portfolio diversification. &(though Buffett isavo#s )ortfo(io iversification,
the %reath of Ber!shire "atha#ay$s ho(ings )ro%a%(y a))roaches efficient
iversification. Case E,hi%it 2 gives a %rea!o#n of Ber!shire$s iverse %usiness seg'ents
/a(so escri%e in the case0D case E,hi%it 3 gives a (isting of Ber!shire$s 10 'a=or
investees. :ro' the (ist, stuents cou( %e as!e #hether the )ortfo(io (oo!s iversifieA
9iscussion
1uestions <
an >
10 Case 1 Warren E. Buffet, 2005
this shou( sti'u(ate a iscussion of #hat iversification 'eans to the' an #hat it 'ight
'ean in finance theory.
The case oes not )rovie the ata #ith #hich to co')(ete an ana(ysis %ase on 'ar!et
va(ues an asset a((ocations, %ut %y =ust (oo!ing, one 'ight ientify )ossi%(e inustry
concentrations in Ber!shire$s ho(ings. Those concentrations o not see' to account for
the %u(! of Ber!shire$s 'ar!et va(ue. The fir'$s )ortfo(io consists of an assort'ent of o
'anufacturing an service %usinesses suggeste in the case, )(us so'e 'a=or e1uity
ho(ings /case E,hi%it 30 that are not easi(y c(assifie in the concentration grou)s. The
'ass of research on )ortfo(io iversification suggests that it oes not re1uire very 'any
ifferent e1uities to achieve the ris!*reuction %enefits of iversification. 9es)ite his )u%(ic
isagree'ent #ith the conce)t of iversification, Buffett see's to )ractice it.
3. Capital-market efficiency. Buffett$s e')hasis on the va(ue of infor'ation asy''etries
see's to confir' so'e a))reciation for efficiency in security )rices. :ro' his )u%(ic
state'ents as re)orte in the case, Buffett$s isagree'ent #ith efficiency focuses on t#o
as)ects.
The conce)t of )assive )ortfo(io 'anage'ent /i.e., ine,ing0
The i')(ication that 1uote )rices e1ua( intrinsic va(ues
The theory of efficiency oes not a%so(ute(y )rec(ue %enefits of active 'anage'ent or the
)ossi%i(ity that )rices 'ay not e1ua( intrinsic va(ues. But it oes suggest that #ithout an
infor'ation avantage or so'e unusua( s!i((, it #ou( %e very ifficu(t to earn su)ernor'a(
returns consistent(y over ti'e. 2t is in this conte,t that Warren Buffett a))ears to %e a
'a=or ano'a(y. The su)ernor'a( returns of Ber!shire "atha#ay suggest that it is )ossi%(e
to %eat the 'ar!et %y a #ie 'argin. Sti((, Buffett$s invest'ent sty(e is consistent #ith
efficiency in so'e i')ortant #ays.
'iscipline and rationality. 2f one is trying to %eat the 'ar!et, it 'a!es no sense to
invest in shares that are fair(y )rice. Buffett$s 1uotations in the case an his
ac1uisition )hi(oso)hy in case E,hi%it ? suggest that he is (oo!ing for the 'ar!et$s
)ricing ano'a(ies. Hoo!ing for the ano'a(ies /the rationa(ity )art0 an #aiting to fin
the' /the isci)(ine )art0 are not inconsistent #ith a 'ar!et that genera((y )rices
securities efficient(y. 2nee, one cou( argue that the activities of investors such as
Buffett he() to create the efficiency that he enies.
)nformation. By virtue of Ber!shire$s (arge stoc!ho(ings in se(ecte fir's, Buffett
ho(s irectorshi)s an en=oys an infor'ationa( avantage unavai(a%(e to outsie
investors. 2nfor'ation avantages are va(ua%(e in a #or( of on(y se'i*strong efficient
'ar!ets.
#onclusion
11 Case 1 Warren E. Buffet, 2005
The fina( issue raise %y the case has to o #ith the sustaina%i(ity of Buffett$s recor. & %i
for +acifiCor) of 8@.6 %i((ion oes not see' unreasona%(e re(ative to current co')ara%(e
va(uations. :or the +acifiCor) ac1uisition to %e a success in the sense of 'atching historica(
returns at Ber!shire, Buffett$s e,)ectations for +acifiCor) 'ust %e raica((y ifferent fro' current,
i')(ie, an e,)ecte va(ues for )eer fir's. With an invest'ent of this siBe, a 'ista!e #i(( have
(asting averse conse1uences for Ber!shire an Buffett. Even if Buffett$s %et on +acifiCor) in May
2005 is correct, the nee to e)(oy (arger a'ounts of 'oney #i(( invite 'ista!esAas Buffet sai,
3& fat #a((et is the ene'y of su)erior invest'ent resu(ts.5 With 'ore than 860 %i((ion in cash an
cash e1uiva(ents, Buffett #ou( have %een 'infu( of this a'onition.
12 Case 1 Warren E. Buffet, 2005
&s escri%e here, the case gives the novice a %roa introuction to the va(uation of, an
invest'ent in, e1uities. The e(e'ents of this introuction inc(ue the fo((o#ing.
e, )ost ana(ysis of invest'ent returns /Ber!shire, Mi&'erican, an the Big :our0 an
co')arison of those returns #ith a %ench'ar!, such as the SI+ 500 2ne, or the 2%%otson
tota( return figures
)eer 'u(ti)(es va(uation ana(ysis of +acifiCor)
iscussion of the 'eaning of share*)rice 'ove'ents fo((o#ing the announce'ent of the
+acifiCor) ac1uisition
revie# of the 'a=or tenets of finance in the conte,t of Buffett$s invest'ent )hi(oso)hy
13 Case 1 Warren E. Buffet, 2005
E,hi%it TN1
.ARRE E( )/00ETT1 -223
Bi%(iogra)hy for Warren E. Buffett
Buffett, Mary, an 9avi C(ar!. *he /e Buffettology0 *he Proven *echniques for )nvesting
1uccessfully in Changing ,arkets *hat Have ,ade Warren Buffett the World%s ,ost +amous
)nvestor. /Ne# Jor!. Si'on I Schuster0, 2002.
Cunningha', Ha#rence &. Ho to *hink (ike Ben$amin 2raham and )nvest (ike Warren Buffett.
/Ne# Jor!. Mc;ra#*"i((0, 2002.
AAA. *he 3ssays of Warren Buffett0 (essons for Corporate -merica. 1st rev. e. /Ne# Jor!.
Cunningha' ;rou)0, 2001.
"agstro', Go%ert ;. *he Warren Buffett Way. 2n e. /Ne# Jor!. Kohn Wi(ey I Sons0, 2006.
"e((er, Go%ert. Business ,asterminds0 Warren Buffett. /9or(ing Liners(ey +u%(ishing0, 2000.
Li()atric!, &nre#. 4f Permanent 5alue0 *he 1tory of Warren Buffett. /Ne# Jor!. &ny
Li()atric! +u%(ishing E')ire0, 2006.
AAA. Warren Buffett0 *he 2ood 2uy of Wall 1treet. re)rint e. /Ne# Jor!. +(u'e0, 1@@5.
Ho#e, Kanet. Warren Buffett 1peaks0 Wit and Wisdom from the World%s 2reatest )nvestor. 2n e.
/Ne# Jor!. Kohn Wi(ey I Sons0, 1@@>.
Ho#enstein, Goger. Buffett0 *he ,aking of an -merican Capitalist. /Main Street Boo!s0, 1@@<.
Morio, &yano. Warren Buffett0 -n )llustrated Biography of the World%s ,ost 1uccessful )nvestor.
/Ne# Jor!. Kohn Wi(ey I Sons0, 2006.
-$Hough(in, Ka'es. *he 6eal Warren Buffett0 ,anaging Capital" (eading People. /Honon.
Nicho(as Brea(ey +u%(ishing0, 2003.
Geyno(s, Si'on. *houghts of Chairman Buffett0 *hirty 7ears of .nconventional Wisdom from
the 1age of 4maha. /Ne# Jor!. Co((ins0, 1@@?.
Stee(e, Kay. Warren Buffett0 ,aster of the ,arket. /Ne# Jor!. "ar)er +a)er%ac!s0, 1@@@.
Train, Kohn. *he ,idas *ouch0 *he 1trategies *hat Have ,ade Warren Buffett -merica%s
Preeminent )nvestor. Ge)rint e. /Ne# Jor!. "ar)erCo((ins0, 1@??.
16 Case 1 Warren E. Buffet, 2005
E,hi%it TN2
.ARRE E( )/00ETT1 -223
E,a')(e of Co')(ete 2GG &na(ysis for Ber!shire
"atha#ay$s 2nvest'ent in Mi&'erican
/8 in 'i((ions e,ce)t )er*share figures0
2nitia(
"eriod 2nvest'ent -22! -22- -224 -225
Operating Revenue and Other $ncome 51674(2 8 51624(2 8 91!54(2 8 917-7(2 8
* Cost of sa(es an o)erating e,)enses 3,522.0 8 3,0@2.0 8 3,@13.0 8 6,3@0.0 8
* 9e)reciation an a'ortiBation 53@.0 8 530.0 8 <03.0 8 <3?.0 8
"rofit )efore Tax 6!-(2 8 !1-:!(2 8 !19-7(2 8 !1966(2 8
* Ta,es M ... 60F 3<6.? 8 512.6 8 <50.? 8 <>@.< 8
"rofit After Tax 357(- 8 79:(9 8 679(- 8 !12!6(5 8
N 9e)reciation an a'ortiBation 53@.0 8 530.0 8 <03.0 8 <3?.0 8
* Net change in fi,e assets an #or!ing ca)ita( ?33.0 8 6,3<3.0 8 2?@.0 8 331.0 8
0ree #ash 0lo; from Operations 253.2 8 /3,0<6.60 8 1,2@0.2 8 1,32<.6 8
Ter'ina( va(ue
1
21,<36 8
Total 0ree #ash 0lo; 253.2 8 /3,0<6.60 8 1,2@0.2 8 22,@<0.5 8
)er+shire<s O;nership: :2(3= /1,<620 8 203.? 8 /2,6<<.?0 8 1,03?.< 8 1?,6?3.2 8
&idAmerican $RR 7!(!=
Gis!*free Gate Ber!shire Beta Gis! )re'iu' Gis!*free Gat e
LeO 5.><F 0.>5 10.50F 5.><F 6(4-=
1
Ter'ina( 4a(ue O :ree Cash :(o#/1Ng0C/L
e
*g0D assu'es 3F gro#thD an Le can %e esti'ate using the C&+M, #here the 30*year
Treasury rate #as 5.><F /see case footnote 130, Ber!shirePs Beta is 0.>5 /case footnote 130, an the (ong*ter', E.S. e1uity*'ar!et
ris! )re'iu' is 10.5F /see case footnote 30D so, Le O 5.><F N 0.>5/10.5F*5.><F0 O @.32F.