Explain how to and then perform a quantitative analysis and subsequently recommend the optimal capital structure mix for Berkshire Hathaway Inc. based on a 20 percent increase in assets.
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Explain how to and then perform a quantitative analysis and subsequently recommend the optimal capital structure mix for Berkshire Hathaway Inc. based on a 20 percent increase in assets.
Analysis should include an estimation of company's cost of capital, price per share, and market value.
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Solution Summary
The solution determines the quantitative analysis and optimal capital structure.
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Optimal capital structure means that the capital structure should have such a mix of various securities where the cost of capital is the minimum and the value of shares is at the maximum.
In turn, the cost of capital depends on the cost of the debt and the equity. It further depends on the financial leverage of the Co which means the debt-equity mix. It further depends on capital gearing ratio which means fixed vis-à-vis fluctuating capital.
On the other hand, Value of shares again depends on the lots of factors like net assets of the Company, its earning capacity and demand and supply of the shares.
The capital structure of the Berkshire Hathaway Inc. is a follows:
2004
( in million $ ) 2003
( in million $)
Total Assets $1,188,874 $180559
Capital Backing:
Common Stock 8 8
Capital in excess of par 26268 26151
Accumulated other comprehensive ...
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