SUGGESTED STUDY QUESTIONS CASE KOHLER CO.
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 of a share held by a minority shareholder in Kohler Co. that is implied by your valuations?
2. 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.
3. 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.
4. What is the maximum share 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 (i) if the trial proceeds it is expected to last less than a month and result in two possible outcomes in terms of the price per share established in court: the $273,000 claimed by the plaintiffs, or the $55,400 being defended by Herbert Kohler; (ii) Kohler estimates the probabilities of these outcomes at 30% and 70%, respectively.
5. How would your answer to question 4 change if you also assume that (i) the inheritance tax owed on Frederic Kohler’s estate was 50.2% of its holdings in Kohler Co. (equivalent to 489 shares of the 975 he owned); (ii) the taxes paid by the estate amounted to $27 million (489 shares at $55,400 each); (iii) 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 Frederic’s estate; and (iv) Herbert Kohler estimates the probability of the IRS’s demand at 100% if he proceeds to trial, and 50% if he settles.