QUESTION Excel Calculations Required Find an appropriate weighted average cost of capital (WACC) to use to discount Precision Castparts (PCC) free cash flows Use comparable company information given in the case to calculate WACC Perform a comparable multiples valuation analysis of PCC Perform a comparableprecedent transactions valuation analysis of PCC Find the value of PCC using discounted cash flow discounted by WACC Do only the DCF from the PCC Historical Forecast Perform a sensitivity analysis for your assigned set of cash flows change two or more variables that impact the price you compute be certain to change each variable individually, not simultaneously Berkshire Hathaway Divisions Dec 31, 2011 Dec 31, 2012 Dec 31, 2013 Dec 31, 2014 Dec 31, 2015 Average Pct by Division (from Revenue) Insurance and Other 77 07 75 92 76 03 75 45 77 27 76 35 Finance and Financial Product 1 47 4 03 4 89 3 65 3 76 3 56 Railroad, Utilities, and Energy 21 46 20 06 19 08 20 90 18 98 20 10 BRK a Dec 31, 2011 Dec 31, 2012 Dec 31, 2013 Dec 31, 2014 Dec 31, 2015 Average Provisional tax rate 29 83 31 14 31 08 28 23 30 14 30 08 PRECISION CASTPARTS CORP In millions Apr 1, Apr 1, Apr 1, Apr 1, Apr 1, Consolidated Income Statement 2011 2012 2013 2014 2015 Net sales 6,208 70 7,201 90 8,347 00 9,533 00 10,005 00 Gross profit COGS 4,154 40 4,769 80 5,440 00 5,961 00 6,427 00 D A 163 8 169 8 214 292 325 Selling and administrative expenses 389 446 4 534 621 641 Restructuring expense 0 0 0 8 Interest expense 13 5 12 8 38 76 69 Interest income 4 5 7 6 7 5 4 Total operating expense 4,716 20 5,391 20 6,219 00 6,945 00 7,466 00 Earnings before interest and taxes (Operating Profit) 1,492 50 1,810 70 2,128 00 2,588 00 2,539 00 Interest income 4 5 7 6 7 5 4 Interest expense 13 5 12 8 38 76 69 Earnings before taxes 1,483 50 1,805 50 2,097 00 2,517 00 2,474 00 Income tax expense 499 7 594 695 830 816 Equity in earnings unconsolidated affiliates 16 6 14 6 0 6 1 175 Total other income (expense), net 483 1 579 4 694 4 829 991 Net income from continuing operations 1,009 40 1,231 30 1,433 60 1,759 00 1,548 00 Net (loss) income discontinued operations 4 1 5 5 4 25 15 Net income 1,013 50 1,225 80 1,429 60 1,784 00 1,533 00 Net income to noncontrolling interest 1 3 1 7 3 7 3 Net income attributable to PCC 1,012 20 1,224 10 1,426 60 1,777 00 1,530 00 Net income per share Basic 7 1 8 48 9 79 12 2 10 73 Diluted $7 04 8 41 9 72 12 12 10 66 Number of shares used in per share calculations Basic 142 7 144 4 145 7 145 6 142 6 Diluted 143 9 145 6 146 7 146 6 143 5 PRECISION CASTPARTS CORP As of In millions Apr 1, Apr 1, Apr 1, Apr 1, Apr 1, Consolidated Balance Sheet 2011 2012 2013 2014 2015 Assets Cash and cash equivalents $1,159 00 $698 70 $280 20 $361 00 $474 00 Receivables $978 70 $1,186 40 $1,509 30 $1,568 00 $1,710 00 Inventories $1,459 40 $1,815 30 $2,981 80 $3,426 00 $3,640 00 Prepaid expenses and other current assets $21 00 $29 40 $159 30 $105 00 $81 00 Income tax receivable $20 00 $7 80 $5 00 $5 00 $37 00 Deferred income taxes $0 00 $101 40 $13 00 $2 00 Discontinued operations $12 50 $48 20 $43 20 $29 00 $28 00 Total current assets $3,650 60 $3,785 80 $5,080 20 $5,507 00 $5,972 00 Property, plant and equipment Land $86 20 $91 20 $137 80 $169 00 $192 00 Buildings and improvements $332 60 $357 30 $464 30 $523 00 $578 00 Machinery and equipment $1,856 00 $2,015 20 $2,671 60 $2,988 00 $3,234 00 Construction in progress $85 40 $144 80 $256 60 $298 00 $324 00 Property, plant and equipment, gross $2,360 20 $2,608 50 $3,530 30 $3,978 00 $4,328 00 Accumulated depreciation ($1,165 40) ($1,286 30) ($1,441 10) ($1,678 00) ($1,854 00) Net property, plant and equipment $1,194 80 $1,322 20 $2,089 20 $2,300 00 $2,474 00 Goodwill $2,889 20 $3,514 30 $5,906 70 $6,613 00 $6,661 00 Acquired intangible assets, net $455 10 $1,228 10 $3,030 40 $3,440 00 $3,744 00 Investment in unconsolidated affiliates $411 90 $442 80 $445 40 $416 00 $238 00 Other assets $309 00 $195 40 $300 10 $262 00 $311 00 Discontinued operations $45 30 $70 20 $44 00 $48 00 $28 00 Total noncurrent assets $5,305 30 $6,773 00 $11,815 80 $13,079 00 $13,456 00 Total assets $8,955 90 $10,558 80 $16,896 00 $18,586 00 $19,428 00 Liabilities Long term debt currently due $14 70 $0 50 $204 00 $2 00 $1,093 00 Accounts payable $607 80 $713 70 $941 00 $1,039 00 $1,162 00 Accrued liabilities $304 00 $335 00 $552 20 $554 00 $559 00 Deferred income taxes $9 30 $1 40 $0 00 $0 00 Discontinued operations $6 20 $20 30 $14 40 $13 00 $13 00 Total current liabilities $942 00 $1,070 90 $1,711 60 $1,608 00 $2,827 00 Long term debt $221 90 $207 70 $3,603 20 $3,569 00 $3,493 00 Pension and other benefit obligations $252 50 $358 90 $548 30 $442 00 $678 00 Other long term liabilities $180 60 $279 60 $456 50 $598 00 $546 00 Deferred income taxes $194 40 $259 10 $761 40 $950 00 $924 00 Discontinued operations $0 00 $17 80 $10 60 $6 00 $3 00 Total noncurrent liabilities $849 40 $1,123 10 $5,380 00 $5,565 00 $5,644 00 Total liabilities $1,791 40 $2,194 00 $7,091 60 $7,173 00 $8,471 00 Shareholder's equity Preferred stock $0 00 $0 00 $0 00 $0 00 $0 00 Common stock $143 70 $145 30 $146 20 $145 00 $139 00 Paid in capital $1,455 70 $1,653 60 $1,776 80 $1,487 00 $60 00 Retained earnings $5,796 70 $7,003 50 $8,412 60 $10,172 00 $11,685 00 Accumulated other loss ($234 60) ($441 70) ($552 20) ($418 00) ($955 00) Noncontrolling interest $3 00 $4 10 $21 00 $27 00 $28 00 Total shareholder's equity $7,164 50 $8,364 80 $9,804 40 $11,413 00 $10,957 00 Total liabilities shareholder's equity $8,955 90 $10,558 80 $16,896 00 $18,586 00 $19,428 00 PCC Revenue by Segment 2011 2012 2013 2014 2015 Investment Cast Products 2,096 2,327 2,480 2,462 2,536 growth 11 02 6 57 0 73 3 01 Forged Products 2,768 3,177 3,552 4,189 4,259 growth 14 78 11 80 17 93 1 67 Airframe Products 1,345 1,698 2,315 2,882 3,210 growth 26 25 36 34 24 49 11 38 Total 6,209 7,202 8,347 9,533 10,005 growth 15 99 15 90 14 21 4 95 Berkshire Hathaway Income Statement USD ($) $ in Millions 12 Months Ended Dec 31, 2011 Dec 31, 2012 Dec 31, 2013 Dec 31, 2014 Dec 31, 2015 Number of shares Price share Market Value ' ' A shares 1 643 213,500 350,781 Total revenues 143,688 162,463 182,150 194,673 210,821 B shares 2465 142 7 351,854 Costs and expenses Total 702,635 Interest expense 2,801 3,253 3,515 Total costs and expenses 128,374 140,227 153,354 166,568 175,875 Earnings before income taxes 15,314 22,236 28,796 28,105 34,946 Income tax expense 4,568 6,924 8,951 7,935 10,532 Net earnings 10,746 15,312 19,845 20,170 24,414 Less Earnings attributable to noncontrolling interests 492 488 369 298 331 Net earnings attributable to Berkshire Hathaway shareholders 10,254 14,824 $ 19,476 $ 19,872 $ 24,083 Class A Member ' ' Net earnings per share attributable to Berkshire Hathaway shareholders Net earnings per share attributable to Berkshire Hathaway shareholders $6,215 $8,977 $ 11,850 $ 12,092 $ 14,656 Average equivalent Class A shares outstanding 1,649,891 1,651,294 1,643,613 1,643,456 1,643,183 Insurance and Other Member Revenues Insurance premiums earned 32,075 34,545 $ 36,684 $ 41,253 $ 41,294 Sales and service revenues 72,803 83,268 92,993 97,097 107,001 Interest, dividend and other investment income 4,792 4,534 4,934 5,026 5,235 Investment gains losses 1,065 990 3,881 3,503 9,363 Total revenues 110,735 123,337 138,492 146,879 162,893 Costs and expenses Insurance losses and loss adjustment expenses 20,829 20,113 21,275 26,406 26,527 Life, annuity and health insurance benefits 4,879 5,114 5,072 5,181 5,413 Insurance underwriting expenses 6,119 7,693 7,248 6,998 7,517 Cost of sales and services 59,839 67,536 75,953 78,873 87,029 Selling, general and administrative expenses 8,670 10,503 11,732 12,198 13,723 Interest expense 308 397 395 419 460 Total costs and expenses 100,644 111,356 121,675 130,075 140,669 Railroad, Utilities and Energy Member Revenues Total revenues 30,839 32,582 34,757 40,690 40,004 Costs and expenses ' ' Cost of sales and operating expenses 22,736 23,816 25,157 29,378 27,650 Interest expense 1,703 1,745 1,865 2,378 2,653 Total costs and expenses 24,439 25,561 27,022 31,756 30,303 Finance and Financial Products ' ' Revenues ' ' Sales and service revenues 2,391 2,537 4,635 5,094 5,430 Interest, dividend and other investment income 1,618 1,572 1,474 1,432 1,510 Investment gains losses 209 472 184 72 10 Derivative gains losses 2,104 1,963 2,608 506 974 Total revenues 2,114 6,544 8,901 7,104 7,924 Costs and expenses ' ' Cost of sales and services 2,566 2,758 2,915 Selling, general and administrative expenses 2,638 2,708 1,550 1,523 1,586 Interest expense 653 602 541 456 402 Total costs and expenses $3,291 $3,310 $ 4,657 $ 4,737 $ 4,903 Berkshire Hathaway Balance Sheets USD ($) $ in Millions 12 Months Ended Dec 31, 2011 Dec 31, 2012 Dec 31, 2013 Dec 31, 2014 Dec 31, 2015 ASSETS Cash and cash equivalents $37,299 $46,992 $48,186 $ 63,269 $ 71,730 Investments in fixed maturity securities 37,550 27,636 26,027 Investments in equity securities 76,991 88,346 117,505 117,470 111,822 Inventories 8,975 9,675 9,860 10,236 11,916 Goodwill 53,213 54,523 57,011 60,714 62,708 Total assets 392,647 427,452 484,931 525,867 552,257 LIABILITIES ' Income taxes, principally deferred 37,804 44,494 57,739 61,235 63,126 Total liabilities 223,686 235,864 260,446 282,840 293,630 Shareholders' equity ' Common stock 8 8 8 8 8 Capital in excess of par value 37,807 37,230 35,472 35,573 35,620 Accumulated other comprehensive income 17,654 27,500 44,025 42,732 33,982 Retained earnings 109,448 124,272 143,748 163,620 187,703 Treasury stock, at cost 67 1,363 1,363 (1,763) (1,763) Berkshire Hathaway shareholders' equity 164,850 187,647 221,890 240,170 255,550 Noncontrolling interests 4,111 3,941 2,595 2,857 3,077 Total shareholders' equity 168,961 191,588 224,485 243,027 258,627 Total liabilities and shareholders' equity 392,647 427,452 484,931 525,867 552,257 Insurance and Other Member ' ASSETS ' Cash and cash equivalents 33,513 42,358 42,433 57,974 61,181 Investments in fixed maturity securities 31,222 36,708 28,785 27,397 25,988 Investments in equity securities 76,063 87,081 115,464 115,529 110,212 Other investments 13,111 10,184 12,334 16,346 15,998 Investments in The Kraft Heinz Company ' 12,111 11,660 23,424 Receivables 19,012 21,753 20,280 21,852 23,303 Inventories 8,975 9,675 9,860 10,236 11,916 Property, plant and equipment 18,177 19,188 13,623 14,153 15,540 Goodwill 32,125 33,274 33,067 34,959 37,188 Other intangible assets 9,203 9,148 Deferred charges reinsurance assumed 7,772 7,687 Other 18,121 17,875 19,113 6,748 6,697 Total assets 250,319 278,096 307,070 333,829 348,282 LIABILITIES ' Losses and loss adjustment expenses 63,819 64,160 64,866 71,477 73,144 Unearned premiums 8,910 10,237 10,770 11,944 13,311 Life, annuity and health insurance benefits 9,924 10,943 11,681 13,261 14,497 Other policyholder liabilities 6,835 7,123 Accounts payable, accruals and other liabilities 18,466 21,149 21,979 16,472 17,879 Notes payable and other borrowings 13,768 13,535 12,440 11,854 14,599 Total liabilities 114,887 120,024 121,736 131,843 140,553 Railroad, Utilities and Energy Member ' ASSETS Cash and cash equivalents 2,246 2,570 3,400 3,001 3,437 Property, plant and equipment 82,214 87,684 102,482 115,054 120,279 Goodwill 20,056 20,213 22,603 24,418 24,178 Regulatory assets 4,253 4,285 Other 12,861 13,441 16,149 11,817 12,833 Total assets 117,377 123,908 144,634 158,543 165,012 LIABILITIES ' Accounts payable, accruals and other liabilities 12,763 11,994 Regulatory liabilities 13,016 13,113 14,557 2,832 3,033 Notes payable and other borrowings 32,580 36,156 46,655 55,306 57,739 Total liabilities 45,596 49,269 61,212 70,901 72,766 Finance and Financial Products Member ' ASSETS ' Cash and cash equivalents 1,540 2,064 2,353 2,294 7,112 Investments in fixed maturity securities 966 842 239 39 Investments in equity and fixed maturity securities 3,810 1,432 1,506 1,299 411 Investments in equity securities 590 938 1,060 372 Other investments 4,882 5,617 5,978 5,719 Loans and finance receivables 13,934 12,809 12,826 12,566 12,772 Property, plant and equipment and assets held for lease 7,700 8,037 9,347 Goodwill 1,032 1,036 1,341 1,337 1,342 Other 3,669 3,225 1,884 1,984 2,260 Total assets 24,951 25,448 33,227 33,495 38,963 LIABILITIES ' Accounts payable, accruals and other liabilities 1,224 1,099 1,299 1,321 1,398 Derivative contract liabilities 10,139 7,933 5,331 4,810 3,836 Notes payable and other borrowings 14,036 13,045 13,129 12,730 11,951 Total liabilities $25,399 $22,077 $19,759 $ 18,861 $ 17,185 Berkshire Hathway Statements of Cash Flows USD ($) $ in Millions 12 Months Ended Dec 31, 2011 Dec 31, 2012 Dec 31, 2013 Dec 31, 2014 Dec 31, 2015 Cash flows from operating activities ' ' Net earnings $10,746 $15,312 $ 19,845 $ 20,170 $ 24,414 Adjustments to reconcile net earnings to operating cash flows ' ' Investment gains losses 1,274 1,462 (4,065) (3,575) (9,373) Depreciation and amortization 5,492 6,154 6,508 7,370 7,779 Other 2 213 373 (341) 751 Changes in operating assets and liabilities ' ' Losses and loss adjustment expenses 3,063 421 578 7,404 2,262 Deferred charges reinsurance assumed 329 121 (340) (3,413) 84 Unearned premiums 852 1,134 519 1,159 1,392 Receivables and originated loans 1,159 1,610 1,035 (1,890) (1,650) Derivative contract assets and liabilities 1,881 2,183 (2,430) (520) (974) Income taxes 1,493 1,710 3,514 4,905 5,718 Other 291 2,408 2,167 741 1,088 Net cash flows from operating activities 20,476 20,950 27,704 32,010 31,491 Cash flows from investing activities ' ' Purchases of fixed maturity securities 7,362 8,250 (7,546) (7,774) (8,186) Purchases of equity securities 15,660 7,376 (8,558) (7,014) (10,220) Investments in The Kraft Heinz Company and other investments 5,000 ' (12,250) (3,000) (5,258) Sales of fixed maturity securities 3,353 2,982 4,311 1,697 2,172 Redemptions and maturities of fixed maturity securities 6,872 6,064 11,203 6,795 6,583 Sales and redemptions of equity securities 14,163 8,088 3,869 8,896 8,747 Purchases of loans and finance receivables 1,657 650 (490) (181) (179) Collections of loans and finance receivables 2,915 1,714 654 885 492 Acquisitions of businesses, net of cash acquired 8,685 3,188 (6,431) (4,824) (4,902) Purchases of property, plant and equipment 8,191 9,775 (11,087) (15,185) (16,082) Other 63 183 (1,210) 336 165 Net cash flows from investing activities 19,189 10,574 (27,535) (19,369) (26,668) Cash flows from financing activities ' ' Changes in short term borrowings, net 301 309 (1,317) 932 (378) Acquisitions of noncontrolling interests 1,878 2,096 (2,890) (1,287) (72) Other financing activities 18 48 (134) 22 (161) Net cash flows from financing activities 2,217 806 961 2,731 3,803 Effects of foreign currency exchange rate changes 2 123 64 (289) (165) Increase (decrease) in cash and cash equivalents 928 9,693 1,194 15,083 8,461 Cash and cash equivalents ' ' Cash and cash equivalents at beginning of year 38,227 37,299 46,992 48,186 63,269 Cash and cash equivalents at end of year 37,299 46,992 48,186 63,269 71,730 Insurance and Other Member ' ' Adjustments to reconcile net earnings to operating cash flows ' ' Investment gains losses 1,065 990 (3,881) (3,503) (9,363) Cash flows from financing activities ' ' Proceeds from borrowings 2,091 1,820 2,622 845 3,358 Repayments of borrowings 2,307 2,078 (2,750) (1,289) (1,916) Cash and cash equivalents ' ' Cash and cash equivalents at beginning of year ' 33,513 42,358 42,433 57,974 Cash and cash equivalents at end of year 33,513 42,358 42,614 57,974 61,181 Railroad, Utilities and Energy Member ' ' Cash flows from financing activities ' ' Proceeds from borrowings 2,290 4,707 7,491 5,765 5,479 Repayments of borrowings 2,335 2,119 (1,596) (1,862) (1,725) Cash and cash equivalents ' ' Cash and cash equivalents at beginning of year ' 2,246 2,570 3,400 3,001 Cash and cash equivalents at end of year 2,246 2,570 3,400 3,001 3,437 Finance and Financial Products Member ' ' Adjustments to reconcile net earnings to operating cash flows ' ' Investment gains losses 209 472 (184) (72) (10) Cash flows from financing activities ' ' Proceeds from borrowings 1,562 2,352 3,462 1,148 1,045 Repayments of borrowings 1,959 3,131 (3,927) (1,543) (1,827) Cash and cash equivalents ' ' Cash and cash equivalents at beginning of year ' 1,540 2,064 2,353 2,294 Cash and cash equivalents at end of year $1,540 $2,064 $ 2,353 $ 2,294 $ 7,112 PCC FORECASTED FINANCIALS USING HISTORICAL FORECASTS In millions Period 0 1 2 3 4 5 6 7 8 9 10 Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Revenue 10,005 10,605 11,242 11,916 12,631 13,389 14,192 15,044 15,946 16,903 17,917 YoY growth 0 06 0 06 0 06 0 06 0 06 0 06 0 06 0 06 0 06 0 06 Cost structure COGS,net D A 6,825 6,943 7,359 7,801 8,269 8,765 9,291 9,848 10,439 11,065 11,729 of revenue 0 65 0 65 0 65 0 65 0 65 0 65 0 65 0 65 0 65 0 65 SG A 641 717 760 805 854 905 959 1,017 1,078 1,142 1,211 of revenue 0 07 0 07 0 07 0 07 0 07 0 07 0 07 0 07 0 07 0 07 EBITDA 2,539 2,946 3,123 3,310 3,509 3,719 3,942 4,179 4,430 4,695 4,977 Income tax rate 32 Current Assets 6,458 6,183 6,554 6,947 7,364 7,806 8,274 8,771 9,297 9,855 10788 Current Liabilities 4,756 4,356 4,766 5,052 5,356 5,677 6,018 6,379 6,761 7,167 7658 Capital Expenditures 702 392 40 415 94 440 90 467 35 495 39 425 77 451 31 478 39 507 10 537 52 Depreciation 325 311 329 349 370 392 416 441 467 495 525 Share Count (Diluted) 143 5 Table 6 Comparable Information Source PCC financial filings Panel A Comparable Company Information Enterprise Value CY2015E CY2016E EBITDA EBITDA Diversified Industrial Companies United Technologies Corporation 9 0x 8 9x Honeywell International Inc 10 6x 10 0x Eaton Corporation 10 6x 9 7x Parker Hannifin Corporation 9 4x 9 1x Aerospace Defense Companies Rolls Royce Holdings plc 7 1x 7 8x Rockwell Collins Inc 10 4x 9 9x GKN plc 6 5x 5 8x Spirit AeroSystems Holdings, Inc 7 5x 7 3x Meggitt PLC 10 4x 9 7x B E Aerospace Inc 12 1x 11 5x Woodward, Inc 10 9x 9 8x Triumph Group, Inc 7 2x 6 4x Table 6b Comparable Transactions Date Acquirer Target Enterprise Announced Value LTM EBITDA Jul 15 Solvay SA Cytec Industries Inc 15 2x Mar 15 Alcoa Inc RTI International Metals, Inc 13 1x Jun 14 Alcoa Inc Firth Rixson Limited 14 3x May 14 Warburg Pincus LLC Wencor Group, LLC 13 5x May 14 Cobham plc Aeroflex Holding Corp 11 4x Aug 13 Rockwell Collins, Inc ARINC Incorporated 11 1x Dec 12 General Electric Company Avio S p A 8 5x Nov 12 Precision Castparts Corp Titanium Metals Corporation 13 8x Jul 12 GKN plc Volvo Aero 6 3x Sep 11 United Technologies Corporation Goodrich Corporation 12 7x Nov 10 Allegheny Technologies Incorporated Ladish Co , Inc 13 2x Sep 10 TransDigm Group Incorporated McKechnie Aerospace Holdings Inc 12 9x Jan 07 General Electric Company Smiths Aerospace 12 4x Table 7 Competitor Information Source Bloomberg Beta 2015 Revenues EBIT EBITDA Net Income Tax Rate United Technologies Corporation (UTX US) 1 11 56,098 00 7,750 00 9,613 00 7,608 00 33 Honeywell International (HON US) 1 06 38,581 00 6,806 00 7,699 00 4,768 00 26 Eaton (ETN US) 1 54 20,855 00 2,342 00 3,267 00 1,979 00 32 Parker Hannifin (PH US) 1 49 11,360 80 1,275 30 1,582 10 806 8 29 Rolls Royce Holdings (RR LN) 1 17 20,929 50 2,320 90 3,556 10 126 6 25 Rockwell Collins (COL US) 0 73 5,244 00 1,008 00 1,260 00 686 28 GKN (GKN LN) 1 32 7,231 00 560 901 197 24 Spirit AeroSystems Holdings (SPR US) 1 12 6,643 90 863 1,044 10 788 3 Meggitt (MGGT LN) 0 79 1,647 20 247 2 401 7 182 1 20 B E Aerospace (BEAV US) 1 09 2,729 60 452 3 537 6 285 7 22 Woodward (WWD US) 1 23 2,038 30 263 9 339 1 181 5 25 Triumph Group (TGI US) 1 45 3,886 10 176 3 1 5 1,048 00 32 Total Long term Shareholders' Stock Price Number of Debt Debt Equity 12 31 2015 Shares United Technologies Corporation 20,425 00 19,320 00 27,358 00 96 07 836,432,010 Honeywell International (HON US) 12,068 00 5,554 00 18,283 00 103 57 769,322,910 Eaton (ETN US) 8,449 00 7,781 00 15,186 00 52 04 458,900,000 Parker Hannifin (PH US) 3,036 80 2,675 00 4,575 30 96 98 135,102,576 Rolls Royce Holdings (RR LN) 4,870 20 4,252 20 7,395 30 575 00 183,867,700 Rockwell Collins (COL US) 2,128 00 1,680 00 1,875 00 92 30 131,131,426 GKN (GKN LN) 1,034 00 867 1,863 00 308 40 167,410,000 Spirit AeroSystems Holdings 1,133 20 1,097 60 2,119 50 50 07 135,521,540 Meggitt (MGGT LN) 1,198 50 1,194 40 2,178 50 374 70 775,167,523 B E Aerospace (BEAV US) 2,034 10 2,034 10 55 5 42 37 102,110,278 Woodward (WWD US) 959 4 850 1,153 10 49 66 61,915,755 Triumph Group (TGI US) 1,417 30 1,374 90 934 9 39 75 49,328,999 Table 8 Market Information Source Duff and Phelps 2016 Valuation Handbook Long term (20 year) US Treasury Bond Yield 2 68 2 68 Equity risk premium 6 9 6 90 Long term growth rate 1 5 (Source http www econ yale edu shiller data htm) 1 50 Table 9 PCC Stock Prices 05 Jan 2014 267 79 04 Jan 2015 238 44 03 Jan 2016 232 01 12 Jan 2014 271 22 11 Jan 2015 229 55 10 Jan 2016 232 07 19 Jan 2014 270 62 18 Jan 2015 199 63 17 Jan 2016 232 11 26 Jan 2014 255 46 25 Jan 2015 207 85 24 Jan 2016 231 48 02 Feb 2014 254 75 01 Feb 2015 200 1 31 Jan 2016 234 95 09 Feb 2014 260 2 08 Feb 2015 203 81 16 Feb 2014 260 44 15 Feb 2015 205 54 23 Feb 2014 256 4 22 Feb 2015 219 61 02 Mar 2014 257 88 01 Mar 2015 216 3 09 Mar 2014 262 96 08 Mar 2015 212 71 16 Mar 2014 252 07 15 Mar 2015 204 59 23 Mar 2014 252 8 22 Mar 2015 210 16 30 Mar 2014 247 58 29 Mar 2015 212 18 06 Apr 2014 253 84 05 Apr 2015 210 8 13 Apr 2014 244 41 12 Apr 2015 213 20 Apr 2014 257 18 19 Apr 2015 201 15 27 Apr 2014 251 7 26 Apr 2015 200 51 04 May 2014 254 33 03 May 2015 208 78 11 May 2014 255 28 10 May 2015 206 36 18 May 2014 240 21 17 May 2015 215 49 25 May 2014 249 02 24 May 2015 219 68 01 Jun 2014 252 98 31 May 2015 211 63 08 Jun 2014 272 75 07 Jun 2015 211 02 15 Jun 2014 265 64 14 Jun 2015 207 9 22 Jun 2014 265 61 21 Jun 2015 210 74 29 Jun 2014 254 36 28 Jun 2015 203 2 06 Jul 2014 254 89 05 Jul 2015 199 05 13 Jul 2014 255 8 12 Jul 2015 190 87 20 Jul 2014 257 39 19 Jul 2015 193 45 27 Jul 2014 232 86 26 Jul 2015 188 68 03 Aug 2014 229 25 02 Aug 2015 194 92 10 Aug 2014 233 83 09 Aug 2015 193 88 17 Aug 2014 239 67 16 Aug 2015 230 5 24 Aug 2014 242 98 23 Aug 2015 230 8 31 Aug 2014 244 06 30 Aug 2015 229 98 07 Sep 2014 241 18 06 Sep 2015 229 59 14 Sep 2014 239 96 13 Sep 2015 229 8 21 Sep 2014 245 68 20 Sep 2015 228 75 28 Sep 2014 239 5 27 Sep 2015 229 03 05 Oct 2014 231 62 04 Oct 2015 230 29 12 Oct 2014 223 62 11 Oct 2015 230 31 19 Oct 2014 226 32 18 Oct 2015 231 38 26 Oct 2014 223 47 25 Oct 2015 230 5 02 Nov 2014 220 7 01 Nov 2015 230 81 09 Nov 2014 226 25 08 Nov 2015 230 65 16 Nov 2014 226 21 15 Nov 2015 230 02 23 Nov 2014 236 99 22 Nov 2015 231 30 Nov 2014 237 9 29 Nov 2015 231 62 07 Dec 2014 242 7 06 Dec 2015 232 11 14 Dec 2014 230 2 13 Dec 2015 231 87 21 Dec 2014 237 20 Dec 2015 230 76 28 Dec 2014 241 26 27 Dec 2015 231 19 2014 Ratio Analysis Precision Castparts Ratios Profitability 2011 2012 2013 2014 2015 Gross margin 33 10 33 80 34 80 37 50 35 80 Pre tax operating profit margin 24 04 25 14 25 49 27 15 25 38 EBITDA margin 26 70 27 50 28 10 30 20 28 60 Net profit margin 16 30 17 00 17 10 18 60 15 32 ROA 12 20 12 50 10 40 10 00 8 25 ROE 14 10 14 60 14 60 15 60 13 99 ROCE 14 10 14 60 14 60 15 60 14 00 DuPont Ratio PM ATO EM ROE NI S S A A E Liquidity Current Ratio 3 88 3 54 2 97 3 42 2 11 Quick Ratio 2 27 1 76 1 05 1 20 0 77 Financial leverage Capital Structure Leverage 1 25 1 26 1 72 1 63 1 77 Total debt to Equity 0 03 0 02 0 39 0 31 0 42 Long term debt ratio 0 03 0 02 0 27 0 24 0 32 Liabilities to Equity 0 25 0 26 0 72 0 63 0 77 Total debt to total capital 0 03 0 02 0 28 0 24 0 30 Working capital to total capital 0 3 0 26 0 2 0 21 0 16 Coverage Operating cash flow to total liabilities 0 58 0 47 0 21 0 26 0 2 Operating cash flow to total debt 4 39 4 99 0 38 0 53 0 37 Operating cash flow to capital expenditures 8 62 5 41 4 56 5 36 3 74 Interest coverage 110 56 141 46 56 00 34 05 36 80 Operating Leverage Operating Leverage 1 33 1 1 1 52 0 38 Efficiency Activity Asset turnover 0 69 0 68 0 49 0 51 0 51 Receivables turnover 6 34 6 07 5 53 6 08 5 85 Inventory turnover 2 85 2 63 1 82 1 74 1 77 Days sales outstanding 57 54 60 13 66 00 60 04 62 38 Days inventory on hand 128 22 138 91 200 07 209 78 206 72 QUESTION Excel Calculations Required Find an appropriate weighted average cost of capital (WACC) to use to discount Precision Castparts (PCC) free cash flows Use comparable company information given in the case to calculate WACC Perform a comparable multiples valuation analysis of PCC Perform a comparableprecedent transactions valuation analysis of PCC Find the value of PCC using discounted cash flow discounted by WACC Do only the DCF from the PCC Historical Forecast Perform a sensitivity analysis for your assigned set of cash flows change two or more variables that impact the price you compute be certain to change each variable individually, not simultaneously

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Question: QUESTION: Excel Calculations Required: Find an appropriate weighted average cost of capital (WACC) to use to discount Precision Castparts (PCC) free cash flows. Use comparable

QUESTION:

Excel Calculations Required:

Find an appropriate weighted average cost of capital (WACC) to use to discount Precision Castparts (PCC) free cash flows. Use comparable company information given in the case to calculate WACC.
Perform a comparable multiples valuation analysis of PCC.
Perform a comparableprecedent transactions valuation analysis of PCC.
Find the value of PCC using discounted cash flow discounted by WACC. Do only the DCF from the PCC Historical Forecast.
Perform a sensitivity analysis for your assigned set of cash flows; change two or more variables that impact the price you compute; be certain to change each variable individually, not simultaneously.

Berkshire Hathaway Divisions
	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2015	Average
Pct by Division (from Revenue)
Insurance and Other	77.07%	75.92%	76.03%	75.45%	77.27%	76.35%
Finance and Financial Product	1.47%	4.03%	4.89%	3.65%	3.76%	3.56%
Railroad, Utilities, and Energy	21.46%	20.06%	19.08%	20.90%	18.98%	20.10%


BRK.a	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2015	Average
Provisional tax rate	29.83%	31.14%	31.08%	28.23%	30.14%	30.08%

PRECISION CASTPARTS CORP
In millions	Apr 1,	Apr 1,	Apr 1,	Apr 1,	Apr 1,
Consolidated Income Statement	2011	2012	2013	2014	2015
Net sales	6,208.70	7,201.90	8,347.00	9,533.00	10,005.00
Gross profit
COGS	4,154.40	4,769.80	5,440.00	5,961.00	6,427.00
D&A	163.8	169.8	214	292	325
Selling and administrative expenses	389	446.4	534	621	641
Restructuring expense		0	0	0	8
Interest expense	13.5	12.8	38	76	69
Interest income	-4.5	-7.6	-7	-5	-4
Total operating expense	4,716.20	5,391.20	6,219.00	6,945.00	7,466.00
Earnings before interest and taxes (Operating Profit)	1,492.50	1,810.70	2,128.00	2,588.00	2,539.00
Interest income	4.5	7.6	7	5	4
Interest expense	13.5	12.8	38	76	69
Earnings before taxes	1,483.50	1,805.50	2,097.00	2,517.00	2,474.00
Income tax expense	-499.7	-594	-695	-830	-816
Equity in earnings unconsolidated affiliates	16.6	14.6	0.6	1	-175
Total other income (expense), net	-483.1	-579.4	-694.4	-829	-991
Net income from continuing operations	1,009.40	1,231.30	1,433.60	1,759.00	1,548.00
Net (loss) income discontinued operations	4.1	-5.5	-4	25	-15
Net income	1,013.50	1,225.80	1,429.60	1,784.00	1,533.00
Net income to noncontrolling interest	-1.3	-1.7	-3	-7	-3
Net income attributable to PCC	1,012.20	1,224.10	1,426.60	1,777.00	1,530.00

Net income per share:
Basic	7.1	8.48	9.79	12.2	10.73
Diluted	$7.04	8.41	9.72	12.12	10.66

Number of shares used in per share calculations:
Basic	142.7	144.4	145.7	145.6	142.6
Diluted	143.9	145.6	146.7	146.6	143.5

PRECISION CASTPARTS CORP
	As of
In millions	Apr 1,	Apr 1,	Apr 1,	Apr 1,	Apr 1,
Consolidated Balance Sheet	2011	2012	2013	2014	2015
Assets:
Cash and cash equivalents	$1,159.00	$698.70	$280.20	$361.00	$474.00
Receivables	$978.70	$1,186.40	$1,509.30	$1,568.00	$1,710.00
Inventories	$1,459.40	$1,815.30	$2,981.80	$3,426.00	$3,640.00
Prepaid expenses and other current assets	$21.00	$29.40	$159.30	$105.00	$81.00
Income tax receivable	$20.00	$7.80	$5.00	$5.00	$37.00
Deferred income taxes		$0.00	$101.40	$13.00	$2.00
Discontinued operations	$12.50	$48.20	$43.20	$29.00	$28.00
Total current assets	$3,650.60	$3,785.80	$5,080.20	$5,507.00	$5,972.00
Property, plant and equipment:
Land	$86.20	$91.20	$137.80	$169.00	$192.00
Buildings and improvements	$332.60	$357.30	$464.30	$523.00	$578.00
Machinery and equipment	$1,856.00	$2,015.20	$2,671.60	$2,988.00	$3,234.00
Construction in progress	$85.40	$144.80	$256.60	$298.00	$324.00
Property, plant and equipment, gross	$2,360.20	$2,608.50	$3,530.30	$3,978.00	$4,328.00
Accumulated depreciation	($1,165.40)	($1,286.30)	($1,441.10)	($1,678.00)	($1,854.00)
Net property, plant and equipment	$1,194.80	$1,322.20	$2,089.20	$2,300.00	$2,474.00
Goodwill	$2,889.20	$3,514.30	$5,906.70	$6,613.00	$6,661.00
Acquired intangible assets, net	$455.10	$1,228.10	$3,030.40	$3,440.00	$3,744.00
Investment in unconsolidated affiliates	$411.90	$442.80	$445.40	$416.00	$238.00
Other assets	$309.00	$195.40	$300.10	$262.00	$311.00
Discontinued operations	$45.30	$70.20	$44.00	$48.00	$28.00
Total noncurrent assets	$5,305.30	$6,773.00	$11,815.80	$13,079.00	$13,456.00
Total assets	$8,955.90	$10,558.80	$16,896.00	$18,586.00	$19,428.00
Liabilities:
Long-term debt currently due	$14.70	$0.50	$204.00	$2.00	$1,093.00
Accounts payable	$607.80	$713.70	$941.00	$1,039.00	$1,162.00
Accrued liabilities	$304.00	$335.00	$552.20	$554.00	$559.00
Deferred income taxes	$9.30	$1.40	$0.00		$0.00
Discontinued operations	$6.20	$20.30	$14.40	$13.00	$13.00
Total current liabilities	$942.00	$1,070.90	$1,711.60	$1,608.00	$2,827.00
Long-term debt	$221.90	$207.70	$3,603.20	$3,569.00	$3,493.00
Pension and other benefit obligations	$252.50	$358.90	$548.30	$442.00	$678.00
Other long-term liabilities	$180.60	$279.60	$456.50	$598.00	$546.00
Deferred income taxes	$194.40	$259.10	$761.40	$950.00	$924.00
Discontinued operations	$0.00	$17.80	$10.60	$6.00	$3.00
Total noncurrent liabilities	$849.40	$1,123.10	$5,380.00	$5,565.00	$5,644.00
Total liabilities	$1,791.40	$2,194.00	$7,091.60	$7,173.00	$8,471.00
Shareholder's equity:
Preferred stock	$0.00	$0.00	$0.00	$0.00	$0.00
Common stock	$143.70	$145.30	$146.20	$145.00	$139.00
Paid-in capital	$1,455.70	$1,653.60	$1,776.80	$1,487.00	$60.00
Retained earnings	$5,796.70	$7,003.50	$8,412.60	$10,172.00	$11,685.00
Accumulated other loss	($234.60)	($441.70)	($552.20)	($418.00)	($955.00)
Noncontrolling interest	$3.00	$4.10	$21.00	$27.00	$28.00
Total shareholder's equity	$7,164.50	$8,364.80	$9,804.40	$11,413.00	$10,957.00
Total liabilities/shareholder's equity	$8,955.90	$10,558.80	$16,896.00	$18,586.00	$19,428.00

PCC Revenue by Segment	2011	2012	2013	2014	2015
Investment Cast Products	2,096	2,327	2,480	2,462	2,536
% growth			11.02%	6.57%	-0.73%	3.01%
Forged Products		2,768	3,177	3,552	4,189	4,259
% growth			14.78%	11.80%	17.93%	1.67%
Airframe Products		1,345	1,698	2,315	2,882	3,210
% growth			26.25%	36.34%	24.49%	11.38%
Total		6,209	7,202	8,347	9,533	10,005
% growth			15.99%	15.90%	14.21%	4.95%

Berkshire Hathaway
Income Statement - USD ($) $ in Millions	12 Months Ended
Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2015		Number of shares	Price/share	Market Value
	'	'				A shares	1.643	213,500	350,781
Total revenues	143,688	162,463	182,150	194,673	210,821	B shares	2465	142.7	351,854
Costs and expenses:						Total			702,635
Interest expense			2,801	3,253	3,515
Total costs and expenses	128,374	140,227	153,354	166,568	175,875
Earnings before income taxes	15,314	22,236	28,796	28,105	34,946
Income tax expense	4,568	6,924	8,951	7,935	10,532
Net earnings	10,746	15,312	19,845	20,170	24,414
Less: Earnings attributable to noncontrolling interests	492	488	369	298	331
Net earnings attributable to Berkshire Hathaway shareholders	10,254	14,824	$ 19,476	$ 19,872	$ 24,083
Class A [Member]	'	'
Net earnings per share attributable to Berkshire Hathaway shareholders:
Net earnings per share attributable to Berkshire Hathaway shareholders	$6,215	$8,977	$ 11,850	$ 12,092	$ 14,656
Average equivalent Class A shares outstanding	1,649,891	1,651,294	1,643,613	1,643,456	1,643,183

Insurance and Other [Member]
Revenues:
Insurance premiums earned	32,075	34,545	$ 36,684	$ 41,253	$ 41,294
Sales and service revenues	72,803	83,268	92,993	97,097	107,001
Interest, dividend and other investment income	4,792	4,534	4,934	5,026	5,235
Investment gains/losses	1,065	990	3,881	3,503	9,363
Total revenues	110,735	123,337	138,492	146,879	162,893
Costs and expenses:
Insurance losses and loss adjustment expenses	20,829	20,113	21,275	26,406	26,527
Life, annuity and health insurance benefits	4,879	5,114	5,072	5,181	5,413
Insurance underwriting expenses	6,119	7,693	7,248	6,998	7,517
Cost of sales and services	59,839	67,536	75,953	78,873	87,029
Selling, general and administrative expenses	8,670	10,503	11,732	12,198	13,723
Interest expense	308	397	395	419	460
Total costs and expenses	100,644	111,356	121,675	130,075	140,669

Railroad, Utilities and Energy [Member]
Revenues:
Total revenues	30,839	32,582	34,757	40,690	40,004
Costs and expenses:	'	'
Cost of sales and operating expenses	22,736	23,816	25,157	29,378	27,650
Interest expense	1,703	1,745	1,865	2,378	2,653
Total costs and expenses	24,439	25,561	27,022	31,756	30,303

Finance and Financial Products	'	'
Revenues:	'	'
Sales and service revenues	2,391	2,537	4,635	5,094	5,430
Interest, dividend and other investment income	1,618	1,572	1,474	1,432	1,510
Investment gains/losses	209	472	184	72	10
Derivative gains/losses	-2,104	1,963	2,608	506	974
Total revenues	2,114	6,544	8,901	7,104	7,924
Costs and expenses:	'	'
Cost of sales and services			2,566	2,758	2,915
Selling, general and administrative expenses	2,638	2,708	1,550	1,523	1,586
Interest expense	653	602	541	456	402
Total costs and expenses	$3,291	$3,310	$ 4,657	$ 4,737	$ 4,903


Berkshire Hathaway
Balance Sheets - USD ($) $ in Millions	12 Months Ended
Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2015
ASSETS
Cash and cash equivalents	$37,299	$46,992	$48,186	$ 63,269	$ 71,730
Investments in fixed maturity securities		37,550		27,636	26,027
Investments in equity securities	76,991	88,346	117,505	117,470	111,822
Inventories	8,975	9,675	9,860	10,236	11,916
Goodwill	53,213	54,523	57,011	60,714	62,708
Total assets	392,647	427,452	484,931	525,867	552,257
LIABILITIES		'
Income taxes, principally deferred	37,804	44,494	57,739	61,235	63,126
Total liabilities	223,686	235,864	260,446	282,840	293,630
Shareholders' equity:		'
Common stock	8	8	8	8	8
Capital in excess of par value	37,807	37,230	35,472	35,573	35,620
Accumulated other comprehensive income	17,654	27,500	44,025	42,732	33,982
Retained earnings	109,448	124,272	143,748	163,620	187,703
Treasury stock, at cost	-67	-1,363	-1,363	(1,763)	(1,763)
Berkshire Hathaway shareholders' equity	164,850	187,647	221,890	240,170	255,550
Noncontrolling interests	4,111	3,941	2,595	2,857	3,077
Total shareholders' equity	168,961	191,588	224,485	243,027	258,627
Total liabilities and shareholders' equity	392,647	427,452	484,931	525,867	552,257

Insurance and Other [Member]		'
ASSETS		'
Cash and cash equivalents	33,513	42,358	42,433	57,974	61,181
Investments in fixed maturity securities	31,222	36,708	28,785	27,397	25,988
Investments in equity securities	76,063	87,081	115,464	115,529	110,212
Other investments	13,111	10,184	12,334	16,346	15,998
Investments in The Kraft Heinz Company		'	12,111	11,660	23,424
Receivables	19,012	21,753	20,280	21,852	23,303
Inventories	8,975	9,675	9,860	10,236	11,916
Property, plant and equipment	18,177	19,188	13,623	14,153	15,540
Goodwill	32,125	33,274	33,067	34,959	37,188
Other intangible assets				9,203	9,148
Deferred charges reinsurance assumed				7,772	7,687
Other	18,121	17,875	19,113	6,748	6,697
Total assets	250,319	278,096	307,070	333,829	348,282
LIABILITIES		'
Losses and loss adjustment expenses	63,819	64,160	64,866	71,477	73,144
Unearned premiums	8,910	10,237	10,770	11,944	13,311
Life, annuity and health insurance benefits	9,924	10,943	11,681	13,261	14,497
Other policyholder liabilities				6,835	7,123
Accounts payable, accruals and other liabilities	18,466	21,149	21,979	16,472	17,879
Notes payable and other borrowings	13,768	13,535	12,440	11,854	14,599
Total liabilities	114,887	120,024	121,736	131,843	140,553

Railroad, Utilities and Energy [Member]		'
ASSETS
Cash and cash equivalents	2,246	2,570	3,400	3,001	3,437
Property, plant and equipment	82,214	87,684	102,482	115,054	120,279
Goodwill	20,056	20,213	22,603	24,418	24,178
Regulatory assets				4,253	4,285
Other	12,861	13,441	16,149	11,817	12,833
Total assets	117,377	123,908	144,634	158,543	165,012
LIABILITIES		'
Accounts payable, accruals and other liabilities				12,763	11,994
Regulatory liabilities	13,016	13,113	14,557	2,832	3,033
Notes payable and other borrowings	32,580	36,156	46,655	55,306	57,739
Total liabilities	45,596	49,269	61,212	70,901	72,766

Finance and Financial Products [Member]		'
ASSETS		'
Cash and cash equivalents	1,540	2,064	2,353	2,294	7,112
Investments in fixed maturity securities	966	842		239	39
Investments in equity and fixed maturity securities	3,810	1,432	1,506	1,299	411
Investments in equity securities		590	938	1,060	372
Other investments		4,882	5,617	5,978	5,719
Loans and finance receivables	13,934	12,809	12,826	12,566	12,772
Property, plant and equipment and assets held for lease			7,700	8,037	9,347
Goodwill	1,032	1,036	1,341	1,337	1,342
Other	3,669	3,225	1,884	1,984	2,260
Total assets	24,951	25,448	33,227	33,495	38,963
LIABILITIES		'
Accounts payable, accruals and other liabilities	1,224	1,099	1,299	1,321	1,398
Derivative contract liabilities	10,139	7,933	5,331	4,810	3,836
Notes payable and other borrowings	14,036	13,045	13,129	12,730	11,951
Total liabilities	$25,399	$22,077	$19,759	$ 18,861	$ 17,185

Berkshire Hathway
Statements of Cash Flows - USD ($) $ in Millions	12 Months Ended
Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2014	Dec. 31, 2015
Cash flows from operating activities:	'	'
Net earnings	$10,746	$15,312	$ 19,845	$ 20,170	$ 24,414
Adjustments to reconcile net earnings to operating cash flows:	'	'
Investment gains/losses	-1,274	-1,462	(4,065)	(3,575)	(9,373)
Depreciation and amortization	5,492	6,154	6,508	7,370	7,779
Other	2	-213	373	(341)	751
Changes in operating assets and liabilities:	'	'
Losses and loss adjustment expenses	3,063	-421	578	7,404	2,262
Deferred charges reinsurance assumed	-329	121	(340)	(3,413)	84
Unearned premiums	852	1,134	519	1,159	1,392
Receivables and originated loans	-1,159	-1,610	1,035	(1,890)	(1,650)
Derivative contract assets and liabilities	1,881	-2,183	(2,430)	(520)	(974)
Income taxes	1,493	1,710	3,514	4,905	5,718
Other	-291	2,408	2,167	741	1,088
Net cash flows from operating activities	20,476	20,950	27,704	32,010	31,491
Cash flows from investing activities:	'	'
Purchases of fixed maturity securities	-7,362	-8,250	(7,546)	(7,774)	(8,186)
Purchases of equity securities	-15,660	-7,376	(8,558)	(7,014)	(10,220)
Investments in The Kraft Heinz Company and other investments	-5,000	'	(12,250)	(3,000)	(5,258)
Sales of fixed maturity securities	3,353	2,982	4,311	1,697	2,172
Redemptions and maturities of fixed maturity securities	6,872	6,064	11,203	6,795	6,583
Sales and redemptions of equity securities	14,163	8,088	3,869	8,896	8,747
Purchases of loans and finance receivables	-1,657	-650	(490)	(181)	(179)
Collections of loans and finance receivables	2,915	1,714	654	885	492
Acquisitions of businesses, net of cash acquired	-8,685	-3,188	(6,431)	(4,824)	(4,902)
Purchases of property, plant and equipment	-8,191	-9,775	(11,087)	(15,185)	(16,082)
Other	63	-183	(1,210)	336	165
Net cash flows from investing activities	-19,189	-10,574	(27,535)	(19,369)	(26,668)
Cash flows from financing activities:	'	'
Changes in short term borrowings, net	301	-309	(1,317)	932	(378)
Acquisitions of noncontrolling interests	-1,878	-2,096	(2,890)	(1,287)	(72)
Other financing activities	18	48	(134)	22	(161)
Net cash flows from financing activities	-2,217	-806	961	2,731	3,803
Effects of foreign currency exchange rate changes	2	123	64	(289)	(165)
Increase (decrease) in cash and cash equivalents	-928	9,693	1,194	15,083	8,461
Cash and cash equivalents:	'	'
Cash and cash equivalents at beginning of year	38,227	37,299	46,992	48,186	63,269
Cash and cash equivalents at end of year	37,299	46,992	48,186	63,269	71,730

Insurance and Other [Member]	'	'
Adjustments to reconcile net earnings to operating cash flows:	'	'
Investment gains/losses	-1,065	-990	(3,881)	(3,503)	(9,363)
Cash flows from financing activities:	'	'
Proceeds from borrowings	2,091	1,820	2,622	845	3,358
Repayments of borrowings	-2,307	-2,078	(2,750)	(1,289)	(1,916)
Cash and cash equivalents:	'	'
Cash and cash equivalents at beginning of year	'	33,513	42,358	42,433	57,974
Cash and cash equivalents at end of year	33,513	42,358	42,614	57,974	61,181

Railroad, Utilities and Energy [Member]	'	'
Cash flows from financing activities:	'	'
Proceeds from borrowings	2,290	4,707	7,491	5,765	5,479
Repayments of borrowings	-2,335	-2,119	(1,596)	(1,862)	(1,725)
Cash and cash equivalents:	'	'
Cash and cash equivalents at beginning of year	'	2,246	2,570	3,400	3,001
Cash and cash equivalents at end of year	2,246	2,570	3,400	3,001	3,437

Finance and Financial Products [Member]	'	'
Adjustments to reconcile net earnings to operating cash flows:	'	'
Investment gains/losses	-209	-472	(184)	(72)	(10)
Cash flows from financing activities:	'	'
Proceeds from borrowings	1,562	2,352	3,462	1,148	1,045
Repayments of borrowings	-1,959	-3,131	(3,927)	(1,543)	(1,827)
Cash and cash equivalents:	'	'
Cash and cash equivalents at beginning of year	'	1,540	2,064	2,353	2,294
Cash and cash equivalents at end of year	$1,540	$2,064	$ 2,353	$ 2,294	$ 7,112

PCC FORECASTED FINANCIALS USING HISTORICAL FORECASTS

In millions
Period	0	1	2	3	4	5	6	7	8	9	10
Year	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025
Revenue	10,005	10,605	11,242	11,916	12,631	13,389	14,192	15,044	15,946	16,903	17,917
YoY growth		0.06	0.06	0.06	0.06	0.06	0.06	0.06	0.06	0.06	0.06
Cost structure
COGS,net D&A	6,825	6,943	7,359	7,801	8,269	8,765	9,291	9,848	10,439	11,065	11,729
% of revenue		0.65	0.65	0.65	0.65	0.65	0.65	0.65	0.65	0.65	0.65
SG&A	641	717	760	805	854	905	959	1,017	1,078	1,142	1,211
% of revenue		0.07	0.07	0.07	0.07	0.07	0.07	0.07	0.07	0.07	0.07
EBITDA	2,539	2,946	3,123	3,310	3,509	3,719	3,942	4,179	4,430	4,695	4,977

Income tax rate = 32%


Current Assets	6,458	6,183	6,554	6,947	7,364	7,806	8,274	8,771	9,297	9,855	10788
Current Liabilities	4,756	4,356	4,766	5,052	5,356	5,677	6,018	6,379	6,761	7,167	7658
Capital Expenditures	702	392.40	415.94	440.90	467.35	495.39	425.77	451.31	478.39	507.10	537.52
Depreciation	325	311	329	349	370	392	416	441	467	495	525

Share Count (Diluted)	143.5

Table 6: Comparable Information
Source: PCC financial filings

Panel A
Comparable Company Information

		Enterprise Value /
		CY2015E		CY2016E
EBITDA	EBITDA
Diversified Industrial Companies
United Technologies Corporation			9.0x		8.9x
Honeywell International Inc.			10.6x		10.0x
Eaton Corporation			10.6x		9.7x
Parker-Hannifin Corporation			9.4x		9.1x

Aerospace& Defense Companies
Rolls Royce Holdings plc			7.1x		7.8x
Rockwell Collins Inc.			10.4x		9.9x
GKN plc			6.5x		5.8x
Spirit AeroSystems Holdings, Inc.			7.5x		7.3x
Meggitt PLC			10.4x		9.7x
B/E Aerospace Inc.			12.1x		11.5x
Woodward, Inc.			10.9x		9.8x
Triumph Group, Inc.			7.2x		6.4x

Table 6b. Comparable Transactions
Date		Acquirer	Target	Enterprise
Announced	Value /
	LTM
	EBITDA
Jul-15		Solvay SA	Cytec Industries Inc.		15.2x
Mar-15		Alcoa Inc.	RTI International Metals, Inc.		13.1x
Jun-14		Alcoa Inc.	Firth Rixson Limited		14.3x
May-14		Warburg Pincus LLC	Wencor Group, LLC		13.5x
May-14		Cobham plc	Aeroflex Holding Corp.		11.4x
Aug-13		Rockwell Collins, Inc.	ARINC Incorporated		11.1x
Dec-12		General Electric Company	Avio S.p.A.		8.5x
Nov-12		Precision Castparts Corp.	Titanium Metals Corporation		13.8x
Jul-12		GKN plc	Volvo Aero		6.3x
Sep-11		United Technologies Corporation	Goodrich Corporation		12.7x
Nov-10		Allegheny Technologies Incorporated	Ladish Co., Inc.		13.2x
Sep-10		TransDigm Group Incorporated	McKechnie Aerospace Holdings Inc.		12.9x
Jan-07		General Electric Company	Smiths Aerospace		12.4x

Table 7 Competitor Information
Source: Bloomberg
	Beta	2015 Revenues	EBIT	EBITDA	Net Income	Tax Rate
United Technologies Corporation (UTX-US)	1.11	56,098.00	7,750.00	9,613.00	7,608.00	33%
Honeywell International (HON-US)	1.06	38,581.00	6,806.00	7,699.00	4,768.00	26%
Eaton (ETN-US)	1.54	20,855.00	2,342.00	3,267.00	1,979.00	32%
Parker-Hannifin (PH-US)	1.49	11,360.80	1,275.30	1,582.10	806.8	29%
Rolls Royce Holdings (RR.-LN)	1.17	20,929.50	2,320.90	3,556.10	126.6	25%
Rockwell Collins (COL-US)	0.73	5,244.00	1,008.00	1,260.00	686	28%
GKN (GKN-LN)	1.32	7,231.00	560	901	197	24%
Spirit AeroSystems Holdings (SPR-US)	1.12	6,643.90	863	1,044.10	788	3%
Meggitt (MGGT-LN)	0.79	1,647.20	247.2	401.7	182.1	20%
B/E Aerospace (BEAV-US)	1.09	2,729.60	452.3	537.6	285.7	22%
Woodward (WWD-US)	1.23	2,038.30	263.9	339.1	181.5	25%
Triumph Group (TGI-US)	1.45	3,886.10	-176.3	1.5	-1,048.00	32%

	Total	Long-term	Shareholders'	Stock Price	Number of
	Debt	Debt	Equity	12/31/2015	Shares
United Technologies Corporation	20,425.00	19,320.00	27,358.00	96.07	836,432,010
Honeywell International (HON-US)	12,068.00	5,554.00	18,283.00	103.57	769,322,910
Eaton (ETN-US)	8,449.00	7,781.00	15,186.00	52.04	458,900,000
Parker-Hannifin (PH-US)	3,036.80	2,675.00	4,575.30	96.98	135,102,576
Rolls Royce Holdings (RR.-LN)	4,870.20	4,252.20	7,395.30	575.00	183,867,700
Rockwell Collins (COL-US)	2,128.00	1,680.00	1,875.00	92.30	131,131,426
GKN (GKN-LN)	1,034.00	867	1,863.00	308.40	167,410,000
Spirit AeroSystems Holdings	1,133.20	1,097.60	2,119.50	50.07	135,521,540
Meggitt (MGGT-LN)	1,198.50	1,194.40	2,178.50	374.70	775,167,523
B/E Aerospace (BEAV-US)	2,034.10	2,034.10	55.5	42.37	102,110,278
Woodward (WWD-US)	959.4	850	1,153.10	49.66	61,915,755
Triumph Group (TGI-US)	1,417.30	1,374.90	934.9	39.75	49,328,999

Table 8: Market Information
Source: Duff and Phelps 2016 Valuation Handbook

Long term (20 year) US Treasury Bond Yield: 2.68%	2.68%
Equity risk premium: 6.9%		6.90%
Long-term growth rate: 1.5% (Source: http://www.econ.yale.edu/~shiller/data.htm)	1.50%

Table 9: PCC Stock Prices
05-Jan-2014	267.79	04-Jan-2015	238.44	03-Jan-2016	232.01
12-Jan-2014	271.22	11-Jan-2015	229.55	10-Jan-2016	232.07
19-Jan-2014	270.62	18-Jan-2015	199.63	17-Jan-2016	232.11
26-Jan-2014	255.46	25-Jan-2015	207.85	24-Jan-2016	231.48
02-Feb-2014	254.75	01-Feb-2015	200.1	31-Jan-2016	234.95
09-Feb-2014	260.2	08-Feb-2015	203.81
16-Feb-2014	260.44	15-Feb-2015	205.54
23-Feb-2014	256.4	22-Feb-2015	219.61
02-Mar-2014	257.88	01-Mar-2015	216.3
09-Mar-2014	262.96	08-Mar-2015	212.71
16-Mar-2014	252.07	15-Mar-2015	204.59
23-Mar-2014	252.8	22-Mar-2015	210.16
30-Mar-2014	247.58	29-Mar-2015	212.18
06-Apr-2014	253.84	05-Apr-2015	210.8
13-Apr-2014	244.41	12-Apr-2015	213
20-Apr-2014	257.18	19-Apr-2015	201.15
27-Apr-2014	251.7	26-Apr-2015	200.51
04-May-2014	254.33	03-May-2015	208.78
11-May-2014	255.28	10-May-2015	206.36
18-May-2014	240.21	17-May-2015	215.49
25-May-2014	249.02	24-May-2015	219.68
01-Jun-2014	252.98	31-May-2015	211.63
08-Jun-2014	272.75	07-Jun-2015	211.02
15-Jun-2014	265.64	14-Jun-2015	207.9
22-Jun-2014	265.61	21-Jun-2015	210.74
29-Jun-2014	254.36	28-Jun-2015	203.2
06-Jul-2014	254.89	05-Jul-2015	199.05
13-Jul-2014	255.8	12-Jul-2015	190.87
20-Jul-2014	257.39	19-Jul-2015	193.45
27-Jul-2014	232.86	26-Jul-2015	188.68
03-Aug-2014	229.25	02-Aug-2015	194.92
10-Aug-2014	233.83	09-Aug-2015	193.88
17-Aug-2014	239.67	16-Aug-2015	230.5
24-Aug-2014	242.98	23-Aug-2015	230.8
31-Aug-2014	244.06	30-Aug-2015	229.98
07-Sep-2014	241.18	06-Sep-2015	229.59
14-Sep-2014	239.96	13-Sep-2015	229.8
21-Sep-2014	245.68	20-Sep-2015	228.75
28-Sep-2014	239.5	27-Sep-2015	229.03
05-Oct-2014	231.62	04-Oct-2015	230.29
12-Oct-2014	223.62	11-Oct-2015	230.31
19-Oct-2014	226.32	18-Oct-2015	231.38
26-Oct-2014	223.47	25-Oct-2015	230.5
02-Nov-2014	220.7	01-Nov-2015	230.81
09-Nov-2014	226.25	08-Nov-2015	230.65
16-Nov-2014	226.21	15-Nov-2015	230.02
23-Nov-2014	236.99	22-Nov-2015	231
30-Nov-2014	237.9	29-Nov-2015	231.62
07-Dec-2014	242.7	06-Dec-2015	232.11
14-Dec-2014	230.2	13-Dec-2015	231.87
21-Dec-2014	237	20-Dec-2015	230.76
28-Dec-2014	241.26	27-Dec-2015	231.19

2014 Ratio Analysis
Precision Castparts Ratios
Profitability	2011	2012	2013	2014	2015
Gross margin	33.10%	33.80%	34.80%	37.50%	35.80%
Pre-tax operating profit margin	24.04%	25.14%	25.49%	27.15%	25.38%
EBITDA margin	26.70%	27.50%	28.10%	30.20%	28.60%
Net profit margin	16.30%	17.00%	17.10%	18.60%	15.32%
ROA	12.20%	12.50%	10.40%	10.00%	8.25%
ROE	14.10%	14.60%	14.60%	15.60%	13.99%
ROCE	14.10%	14.60%	14.60%	15.60%	14.00%
DuPont Ratio = PMATOEM=ROE = NI/SS/AA/E
Liquidity
Current Ratio	3.88	3.54	2.97	3.42	2.11
Quick Ratio	2.27	1.76	1.05	1.20	0.77
Financial leverage
Capital Structure Leverage	1.25	1.26	1.72	1.63	1.77
Total debt to Equity	0.03	0.02	0.39	0.31	0.42
Long-term debt ratio	0.03	0.02	0.27	0.24	0.32
Liabilities to Equity	0.25	0.26	0.72	0.63	0.77
Total debt to total capital	0.03	0.02	0.28	0.24	0.30
Working capital to total capital	0.3	0.26	0.2	0.21	0.16
Coverage
Operating cash flow to total liabilities	0.58	0.47	0.21	0.26	0.2
Operating cash flow to total debt	4.39	4.99	0.38	0.53	0.37
Operating cash flow to capital expenditures	-8.62	-5.41	-4.56	-5.36	-3.74
Interest coverage	110.56	141.46	56.00	34.05	36.80
Operating Leverage
Operating Leverage		1.33	1.1	1.52	-0.38
Efficiency/Activity
Asset turnover	0.69	0.68	0.49	0.51	0.51
Receivables turnover	6.34	6.07	5.53	6.08	5.85
Inventory turnover	2.85	2.63	1.82	1.74	1.77
Days sales outstanding	57.54	60.13	66.00	60.04	62.38
Days inventory on hand	128.22	138.91	200.07	209.78	206.72

QUESTION:

Excel Calculations Required:

Find an appropriate weighted average cost of capital (WACC) to use to discount Precision Castparts (PCC) free cash flows. Use comparable company information given in the case to calculate WACC.
Perform a comparable multiples valuation analysis of PCC.
Perform a comparableprecedent transactions valuation analysis of PCC.
Find the value of PCC using discounted cash flow discounted by WACC. Do only the DCF from the PCC Historical Forecast.
Perform a sensitivity analysis for your assigned set of cash flows; change two or more variables that impact the price you compute; be certain to change each variable individually, not simultaneously.

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