Solution: Clean Water Discussion

We have also seen that the business plan assumes a fairly high level of profitability. While these assumptions are backed by the firm's history, the question is whether the buyer will be able to replicate the operating excellence under the previous owner. For example, what if the personnel expenses were 27% of net revenues rather than 25%? The following graph shows the answer (assuming the growth rates from the base case):

If Clean Water the costs are (slightly) higher than projected, the free cash flows and the available credit line will not suffice to cover the owner's liquidity needs. He would need additional funding of approximately 150'000 after Year 2.