Power Water Beverages, Inc. Harvard Case Solution & Analysis

The Power Water Beverages Incl. was going through a very tough time and it was not able to have reasonable projections to meet its liabilities and was trying to be very conservative in its projections to achieve acertain level of returns in its three years of operations from the year 2007 to 2009. It was following a projection to estimate the capital requirement for the upcoming three years and it mentioned an amount of around 950,000 dollars for raising its capital, which was quite low and it needs to be reconsidered because the company’s expenditures in the coming years would be quite high and it needs further evaluation.
If the company gets investment, it will easily be able to payback its expenditures for capital investments and meet its net working capital requirement, payback its debt and pay the interest expenses. However, if the company is unable to get investment, it will be unable to payback its expenditures and it will be facing money shortfall and eventually resulting in the low liquidity of the company.
Revised Investment Option:
Based on my analysis, the required amount of money was calculated by first of all looking at the free cash flows by starting with earnings before interest and tax and adding depreciation expense because it is a non-cash expense. Moreover, the net working capital requirement was deducted from EBIT for the 3 projected years and capital investments were also deducted to reach the value of free cash flows.
The EBIT was relatively lower in the year 2007 at around 486,034 dollars whereas, it was relatively higher in the year 2008 at around 1,864,459 dollars and in 2009 at around 3,718,496 dollars. Moreover, the depreciation expense was around 25,000 dollars in the year 2007 and it will be relatively lower in the year 2008 at around 23,200 dollars and in 2009 at around 21,900 dollars. Moreover, the net working capital figure was extracted from the cash flow statement of the company and more specifically from net operating activities to look at the additional working capital requirement for the years from 2007 to 2009.
The Net working capital requirement in the year 2007 was around 108,524 dollars whereas, it increased rapidly in the year 2008 and reached to around 218,122 dollars. However, it was relatively lower in the year 2009 and it reached to 184,065 dollars. Moreover, the capital requirement figures were extracted from the cash flows from investing activities because it usually takes the difference of the capital expenditures.
Power Water Beverages, Inc. Harvard Case Solution & Analysis

The amount of capital expenditure was 50,000 dollars in the year 2007 and there was no addition in the year 2008 whereas, the company had increasing capital expenditures amounting to around 45,000 dollars. This will lead to Free Cash Flows amount of 352,510 dollars in the year 2007 whereas, it will be quite high in the year 2008 due to higher EBIT 1,669,537 dollars and it will reach to 3,511,331 dollars in the year 2009 and in total it will make an amount of around 5.53 million dollars...............

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