Kohler Co. (A) Case Study: Evaluating Share Price and Tax Implications

This case study solution analyzes the Kohler Co. (A) case, focusing on corporate finance aspects such as share valuation using the Discounted Cash Flow (DCF) method and the Multiple method. It evaluates the discrepancies in share price valuation resulting from these different methods and discus...Read More

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1CORPORATE FINANCE
Table of Contents
Question 1:.......................................................................................................................................2
Question 2:.......................................................................................................................................3
Question 3:.......................................................................................................................................3
Question 4:.......................................................................................................................................4
Bibliography:...................................................................................................................................5

2CORPORATE FINANCE
Question 1:
DCF Method:
Particulars 1998a 1999 2000 2001 2002
Terminal
value
Net Income 48,590.00 60,032.00 86,860.00 98,314.00
108,229.0
0
Total cash
flow 48,590.00 60,032.00 86,860.00 98,314.00
108,229.0
0 $ 4,721,682
Discounting
rate 0.93 0.86 0.80 0.75 0.69 0.69
Disc-cashflow 45,153.22 51,840.19 69,702.03 73,313.31 74,998.57 3,271,945.55
Enterprise
value
3,586,952.8
7
Particulars Value
Total enterprise value $ 3,586,953
Debt $ 681,038
The equity value $ 2,905,915
Number of shares 7,587.89
Value of a share $ 382.97
Multiple Method:
Particulars Value
Total enterprise value $ 2,058,110
Debt $ 681,038
The equity value $ 1,377,072
Number of shares 7,587.89
Value of a share $ 181.48

3CORPORATE FINANCE
The calculations conducted under DCF method and Multiple method has mainly
evaluated different level of share price for the organization. The difference in the share price
valuation is due to the alternative methods that is being used for evaluating the current position
of the organization.
Question 2:
The share price that is offered by Kohler is relevantly to low, where the organization is
anticipated to grow. The assumption made regarding the growth rate is relevantly unrealistic
under actual consideration. Moreover, perpetuity growth rate needs to be maintained by the
organization, which needs to be at the current growth rate. Hence, the growth rate will increase
both the terminal value and enterprise value of the organization, which in turn will raise the
overall share price value.
The share price of $273,000 is anticipated to be more than 5 times the offered price,
where the event occurs during the recapitalization, which cannot be considered, as the correct
price for today. Hence, if the price of determined to be at the levels of $273,000 then Kohler will
be paying high level of taxes on the estate of Frederic Kohler.
Question 3:
Particulars Value Probability Value
Price 1 273,000 30% 81,900
Price 2 55,400 70% 38,780
Average share price 120,680

4CORPORATE FINANCE
After evaluating the probability conditions and share price value the average share price
value is mainly evaluated at the levels of 120,680. Hence, it could be assumed that the maximum
share price that is anticipated for the company is mainly at the levels of 120,680.
Question 4:
Particulars Value
Cost per share 120,680.00
No of shares 489.00
Total Value of share 59,012,520.00
Settlement rate 50.00%
Expected taxes 29,506,260.00
Taxes paid 27,000,000.00
Extra taxes to be paid 2,506,260.00
From the overall calculation it can be detected that the extra tax that needs to be paid by
Kohler is 2,506,260, as anticipated from the above calculation.

5CORPORATE FINANCE
Bibliography:
Atanasov, V.A. and Black, B.S., 2016. Shock-based causal inference in corporate finance and
accounting research. Critical Finance Review, 5, pp.207-304.
Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate
finance (Vol. 324). John Wiley & Sons.
Dang, C., Li, Z.F. and Yang, C., 2018. Measuring firm size in empirical corporate
finance. Journal of Banking & Finance, 86, pp.159-176.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage
learning.
Foley, C.F. and Manova, K., 2015. International trade, multinational activity, and corporate
finance. economics, 7(1), pp.119-146.
Fracassi, C., 2016. Corporate finance policies and social networks. Management Science, 63(8),
pp.2420-2438.