Kohler Case

Questions for Kohler case

1. What is the total enterprise value of Kohler Co. using a discounted cash flow approach? What is the total enterprise value using a multiples (market value of comparable companies) approach? What is the value the share held by a minority shareholder in Kohler Co. that is implied by your valuations?

1. What assumptions can you use to arrive approximately at the share price of $55,400 that was estimated by Kohler Co.? Show how these assumptions impact your valuation.

1. What assumptions can you use to arrive approximately at the share price of $273,000 that was estimated by the dissenting shareholders? Show how these assumptions impact your valuation.

The questions below are things that we will discuss in the second class.

1. What is the maximum price at which Herbert Kohler should be willing to settle with the dissenting shareholders in order to stop the trial on April 11, 2000?

Assume that:

1. If the trial proceeds, it is expected to last less than a month and to result in one of two possible outcomes in terms of the price per share established in court: the $273,000 being claimed by the plaintiffs, or the $55400 being defended by Herbert Kohler.
2. Kohler estimates the probabilities of these two outcomes at 30% and 70% respectively.

1. How should your answer to (4) change if you also assume that

1. The inheritance tax owed on Frederic Kohler’s estate was 50.2% of his holdings in Kohler Co. (equivalent to 489 shares out of the 975 he owned)
2. The taxes paid by the estate amounted to $27 million (489 shares at 55,400 each)
3. Were the settlement or the trial to result in a revised share price in excess of $55,400, the IRS would likely demand a similar valuation for its claim of Frederic’s estate
4. Herbert Kohler estimates the probability of IRS’s demand at 100% if he proceeds to trial and 50% if he settles.