Case 1:
a) From Warren Buffett’s perspective, what is the intrinsic value?
According to Warren Buffett’s perspective, the intrinsic value is defined as “the present value of future expected performance” (Bruner, Eades,&Schill, 6th 2010).
Why is it accorded
NPV= -C + R1/ (1+r1) +R2/ (1+r2)2+…+Rk/ (1+rk) k
The intrinsic value is such important because it can be used to estimate the value of the business’ ongoing operations, not company’s stock. According to Buffett, the intrinsic value is very subjective, but he stated that “it is better to be approximately right than precisely wrong” ” (Bruner, Eades, &Schill, 6th 2010), so he estimate it by discounting all future cash flow to today’s value. Book value and accounting profit are the alternatives to intrinsic value. However, Warren Buffett rejects them as the financial statement may not fully represent the economic reality of the business and the book value only reflects the historical data which already happened in the past.
CASE 1: Warren Buffett:
a) From Warren Buffett’s perspective, what is the intrinsic value?
According to Warren Buffett’s perspective, the intrinsic value is defined as “the present value of future expected performance” (Bruner, Eades,&Schill, 6th 2010).
Why is it accorded such importance?
It can be used to estimate the value of the business’ ongoing operations, not company’s stock.
How is it estimated?
The intrinsic value is very subjective, but he stated that “it is better to be approximately right than precisely wrong” (Bruner, Eades, &Schill, 6th 2010), so he estimate it by discounting all future cash flow to today’s value.
NPV= -C + R1/ (1+r1) +R2/ (1+r2)2+…+Rk/ (1+rk) k
What are the alternatives to intrinsic value?
Book value and accounting profit are the alternatives to intrinsic value.
Why does Buffett reject them?
Warren Buffett rejects them as the financial statement may not fully represent the economic reality of the business and the book value only reflects...