Business Essay

996 Words4 Pages
CASE 1: Warren Buffett: Using the information in Case Study 1 answer the following questions. (a) From Warren Buffett’s perspective, what is the intrinsic value? Why is it accorded such importance? How is it estimated? What are the alternatives to intrinsic value? Why does Buffett reject them? (b) Critically assess Buffett’s investment philosophy. Identify points where you agree and disagree with him. (c) Should Berkshire Hathaway’s shareholders endorse the acquisition of PacifiCorp? Why? (a) Intrinsic value means the present value of performance. Now it is used by Warren Buffett as “the present value of future expected performance”. This intrinsic value can show that how well the firm is run. Its cash flow and places a management competency in local. Intrinsic value is an important portion in value investing because of it allows Warren Buffett to indentify stocks and business. Which one undervalued. This is important for intrinsic value is value of firm’s business, not its stocks. Buffett admits that value invest is important and subjective. Warren Buffett’s idea is to estimate the cash flow. This is like NPV, a firm business cash flow. This is only a estimate that today’s value to obtain an intrinsic value. A substitute for intrinsic value is book value or accounting profit. That is base on the book value or account statements instead. Warren Buffett rejects these succedaneums. “Economic reality, not accounting reality” it is his viewpoint. Book value is not useful, it is used as a intrinsic value, but it is not fully reflect the relationship between rates of return and the required of return. Book value is considered whereas intrinsic value is the measure of future output. (b) Warren Buffett says that “Economic reality, not accounting reality.”I agree it. Accounting reality was conservative, backward-looking, and governed by
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