IMD-1-0270 © 2009
Leleux, Benoit F.; Lachowitz, Jonathan
To be able to seem credible before the Swiss Tax authorities, the Kooltex management team hired Diamond Financial Consulting, a local “fiduciaire” with a strong reputation, to help them value the direction bonus bundle; one that they had received during the company’s secondary buy out in March 2007.
Keeping Cool Running The Numbers On The Kooltex Incentive Package (B) Case Study Solution
The management incentive was designed to provide the Kooltex team the possibility to share significantly in the upside of their new owner’s investment however only if they doubled the CHF 64 million investment and reached a minimum of 25% internal rate of return on investment (IRR) per year. Using the latest Monte Carlo simulation techniques, the management option was valued by Diamond Financial Consulting at about CHF 185,000. Their complete first report is presented. Learning objectives: Using Monte Carlo simulation to value complicated, nontraditional options, such as management stock option plans in the context of buyouts.
Subjects: Valuation; Option pricing; Monte Carlo simulations
Settings: Switzerland; Textile and Fiber Production; 120 employees; 2007
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