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

Onepossibleacquisition is a privately held company in an established(mature)industry.AstroPharmaceuticalCorporation isa pharmaceutical company.

RelevantFinancials are:

Free cash flow for the past yearwas$2,000,000.

The company has a WACC of 10%.

Outstanding shares:50,000

Expected yearly growth at 6%

Assets:

Liabilities andstockholdersequity:

Book value ofLong termdebt: $500,000

Bookvalue of the firmsequity: $500,000

What is thevalue of the firm?

What is themarketvalue of thefirmsequity?

What is thefirms MVA?

What is the firms stock price?

B.General Hospital

A second possibleis GeneralHospital, a health carecompanyis

operatingin a rapid growth industry.

Relevant financials:

Free cash flow for the past year was $10,000,000

The companys WACC is 20%

Outstanding shares 150,000

Expected yearly growth at 4%

Assets:

Book value of long term debt: $2,000,000

Bookvalue ofequity: $20,000,000

What is the value ofthe firm?

What is themarket value of the firms equity?

What is the firms MVA?

What is the companys stock price

Please discuss in detail how Warren Buffett might evaluate these proposed takeovers:

which company he would prefer and why,