Business situation

Blover LLC (“Blover”), a steel manufacturing company, is conducting its annual valuation for goodwill impairment testing purposes. The CFO puts together a valuation in January and arrives at a value of $250 million for the company. In February, after the initial analysis was completed, there was a disruption in the market. One of the company’s steel manufacturing facilities was suddenly destroyed in a natural disaster. This facility generated 15 percent of Blover’s revenue. While Blover is disappointed about this facility being destroyed, it plans to rebuild a new facility within 2 years that can produce 1.5x the amount of steel as the last facility.

Problem statement

Blover’s CFO called Deloitte for assistance with its annual valuation for goodwill impairment purposes and he’s particularly interested in understating how this facility being destroyed, and his plans to rebuild a new one, would affect Blover’s value.