Water flows

EVA = Net Operating Profits – (WACC*Capital Asset Base); the unlevered operating income after tax less the fair return on invested capital.

Provide the following information to the candidate if requested:

• Revenues have been more or less constant over the past couple of years
• More than 80% of the revenue comes from residential and commercial water usage
• Billing is done monthly according to the consumption of the customer. It is difficult to change the pricing due to certain government regulations
• The capital base has remained the same over the past 5 years
• Costs also have been relatively stable
• The company can serve more customers if required

1. Different Channel

For example, the firm could start selling bottled water.

The interviewer should keep challenging the candidate for more ideas. For instance, you could reject this idea saying it would be difficult to implement without incurring additional costs for distribution, packaging, branding, etc.

2. Expand into other regions

Currently, the firm serves the southwest region of the USA. Since the company has additional capacity, it should consider expanding into other regions of the country. Regulatory concerns come into play when discussing such a geographical expansion.

Past history suggests that local people and businesses are not very supportive with respect to the expansion of German firms.

3. Merge with another firm

Merging with a local firm and dropping the German name should be considered.

The company should either start a new sales channel (for example, bottled water) or expand into new regions by merging with a local firm.