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2. Dr. Hakala’s Valuation Processes and Methodologies
Dr. Hakala’s background research on Kohler was limited. He
met with Kohler management just once, for about 2-1/2 hours. He
did obtain financial information from the company including both
the operations plan and management plan, however, and also
considered industry information.
Dr. Hakala used two of the three traditional approaches to
business valuation, the income approach and the market approach.
We agree with his decision not to use the third approach, the
cost approach, which is best suited for asset-intensive
businesses rather than going concerns. Like petitioners’
experts, he also did not consider any actual sales of Kohler
stock in his analysis. We shall briefly describe Dr. Hakala’s
use of the income approach and the market approach.
Dr. Hakala used only one method under the income approach,
and it was not a dividend-based method. He used only a
discounted cash flow (DCF) method.9 Dr. Hakala stated that the
DCF method was the most accurate method and was convinced of the
redundancy or unreliability of dividend-based methods.10
9The DCF method discounts to present value the expected
future income of the corporation to generate a value for the
business and the stock.
10Dividend-based methods, in contrast to the DCF method,
generally value the stock based on the expected future dividends
to be received on the stock. Some dividend-based methods also
take into account the probability of possible liquidity events
(continued...)
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