Product details

Thiel Machinery, a successfully growing machinery company, is grappling with the potential impact of losing the ability of using LIFO inventory costing methods on its current and future funding sources. The student is placed in the role of a recently-hired assistant to the president and founder of the company. The student is charged with providing an analysis and summary report of the likely implications for the company’s current financing situation and its upcoming stock issue. This case requires the student to examine how a significant change in accounting principle will likely affect the financial condition and future funding situation of Thiel Machinery. Specifically, the student will examine how the probable abolition of the LIFO inventory costing method (as the US moves towards acceptance of the International Financial Reporting Standard) will affect various financial ratios of the company, most notably the Altman Z-score. The student must make pro forma adjustments to the company’s existing financial statements that account for the elimination of LIFO and calculate the expected change in the Z-score. Because the company is currently privately-held, the student will also need to estimate the market value of the company’s equity using a free cash flow valuation model and examine how reduced cash flows from higher tax payments affect not only financial ratio calculations but potentially the value of the company itself.