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2016 September 29 Assignment Questions

This document contains 7 questions regarding valuation of Kohler Co. shares owned by dissenting shareholders. It asks about determining enterprise value using DCF and multiples approaches, implied minority share value, assumptions to arrive at estimated share prices of $55,400 and $273,000, the maximum Herbert Kohler should settle for assuming a 30% probability of a court ruling of $273,000 and 70% of $55,400, and how the maximum changes factoring in inheritance tax implications.

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Sunil Kumar
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106 views1 page

2016 September 29 Assignment Questions

This document contains 7 questions regarding valuation of Kohler Co. shares owned by dissenting shareholders. It asks about determining enterprise value using DCF and multiples approaches, implied minority share value, assumptions to arrive at estimated share prices of $55,400 and $273,000, the maximum Herbert Kohler should settle for assuming a 30% probability of a court ruling of $273,000 and 70% of $55,400, and how the maximum changes factoring in inheritance tax implications.

Uploaded by

Sunil Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Kohler Co.

(A)

1. What is the total enterprise value of Kohler Co. using the discounted cash flow approach?

2. What is the total enterprise value using multiples approach?

3. What is the value of a share held by a minority shareholder that is implied by your valuations?

4. What assumptions can you use to arrive at the share price of $55,400 that was estimated by
Kohler Co.?

5. What assumptions can you use to arrive at the share price of $273,000 that was estimated by
the dissenting shareholders?

6. What is the maximum share price at which Herbert Kohler should be willing to settle with the
dissenting shareholders? Assume that:
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 by the court: (i) $273,000 with a probability
of 30%; (ii) $55,400 with a probability of 70%

7. How would the answer to Question 6 change if you also assume

The inheritance tax owed on Fredric Kohlers estate was 50.2% of his holdings in Kohler
Co. (equivalent to 489 shares out of the 975 he owned)
The taxes paid by the estate amounted to $27 million (489 shares @ $55,400 each)
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 on Fredrics estate
Herbert Kohler estimates the probability of the IRSs demand at 100% if he proceeds to
trial, and 50% if he settles

For questions 6 and 7 assume

Legal fees paid can be ignored


The cost of capital is the same for all parties

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