RAFTING BUSINESS

Case Description: This case analyzes the current profitability and estimated value of a rafting business.

Inventory: [no exhibits]

Industry: Adventure Business

Potential applicable frameworks: Profitability

INTRODUCTION

My friend Carlos wants to invest in a rafting business in California. In addition to the investment, he wants to work as
general manager of this business. Carlos has asked me following questions:

[Note to interviewer: This case is relatively straight forward. The interviewer should really probe interviewee to identify
the key drivers of both revenue and cost in this particular business—try not to give away much. In addition, once the
interviewee has performed the valuation, they should really think about some of the inherent risk of this business.]

Question 1: Is the business currently profitable?

Question 2: How much is the business worth?

Question 3: Should I acquire it?

Case Details

Question 1: Is the business currently profitable?

Info to be given as case progresses:

• Since this is a seasonal business, it is open every day in July and August and only 2 days per week in May, June, and
September. It is closed for the rest of the year.

Info to be given if asked:

• Revenue:

o The business has 5 rafting boats. o Each boat makes on average 20 trips per day.

o The price of each trip is $20.

• Costs:

o Variable: Labor is 4 Rafting instructors, making $15/hour worked.

o Fixed: General manager’s salary: $40,000/year

o Fixed: 2 leased vans to transport clients and equipment from the end of the tour back to the start: $5,000/van/year

o Fixed: Insurance (risky business!): $8,000/year

o Fixed: Overhead is $2,000/year

Question 2: How much is the business worth?

Info to be given if asked:

• For the valuation, let’s assume a discount rate of 10%.

• Let’s do a perpetuity valuation.

Question 3: Should I acquire it? No Information.