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    Calculate loss to Goldman's shareholders

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    In September 2008, in the midst of the credit crisis on Wall Street, Goldman Sachs invited Warren Buffett, the legendary fundamental investor, to contribute much-needed equity capital to the firm. Buffett seemingly got a very good deal. For a $5 billion cash infusion, he received perpetual preferred equity shares carrying a 10 percent dividend (redeemable by Goldman Sachs) plus warrants to buy $43.5 million common shares at $115 per share( for a total of another $5 billion). The $115 conversion price was set at the current share price, a three year low for Goldman. If Buffett exercises the warrants when Goldman Sachs's per share price is $159, what is the loss to Goldman's shareholders?

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    Solution Summary

    The solution calculate loss to Goldman's shareholders as result of the deal with Warren Buffett.