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Case Interview Study Guide
INTRODUCTION TO CASE INTERVIEWS Consulting firms use case interviews primarily to assess two qualities that are important in the consulting field: 1. Logical Reasoning 2. Business Acumen In addition to these two qualities, there are, of course, many other qualities consulting firms look for in a candidate such as creativity, maturity, leadership, and communication skills. All of these are evaluated during the resume review as well as the case interviews, and you should keep all of them in mind in presenting yourself. There are three major types of cases: 1. Estimation Cases 2. Business Cases 3. Mini Cases The estimation cases and some mini cases are used to test your logical reasoning skills, while some mini cases and most business cases are used to test both your reasoning skills and your business acumen.
ESTIMATION CASES In estimation cases you are asked to come up with an “educated guess” of some number, such as the all-time classic: “How much does a Boeing 747 weigh?” While the questions may sometimes seem “off the wall,” this is an important skill to possess in consulting work. As a consultant, you will often have to make decisions based on incomplete or unavailable data, in which case it becomes important to generate reasonable estimates. For example, there may be no direct data available on the number of gas stations in the state of Pennsylvania, but this may be of great importance to your client in the oil and gas industry. You will have to make an estimate based on data that you can get (number of cars sold, population, average gas mileage, just to name a few) and use logical inference to estimate the number you are looking for. Making Assumptions In these types of exercises it is not important whether your assumptions are right or wrong (in the real world you have a research department to find that out for you), but make sure that your estimates are at least reasonable based on common sense. For example, if one of the assumptions you make is about the US population, do not say that you assume it is 10 million. It is important that you use easy numbers for your assumptions because you will have to do some arithmetic off the top of your head. If you start out with an estimate of the US population of 237 million, you
Case Interview Study Guide
will probably start sweating profusely when you have to divide or multiply this number. Use 250 million, it is a lot easier to work with. Logical Reasoning Estimation problems are based on logical reasoning applied to a number of known data points (your assumptions) to arrive at the desired answer. Since your logic is what is tested, lay it out clearly for the interviewer. Before you start making assumptions, tell the interviewer what your logic is going to be to figure out the answer. Once you have done that, make the assumptions and do the math. To come up with a logical approach to answer an estimation problem, start with the answer and reason backwards about causal relationships. Think of this as a tree diagram. For example, if you are asked to estimate the number of basketballs purchased by the NBA and its teams each year, start out by thinking what basketballs are used for (the cause for purchasing basketballs). Most likely, they are used for games and practice. These are then the first two branches of your tree diagram. To continue to solve this problem, attack one branch at a time. Do not try to move down different paths at the same time, it will only lead to confusion. To continue with the basketball example, let’s take the “games branch” of our tree diagram. We know that the number of balls is a function of the number of games and the number of balls per game (the causal relationship). What does the number of games depend upon? It depends on the number of teams and the length of the season (See, it doesn’t take a rocket scientist or basketball coach to figure this out, common sense is sufficient). You can make an assumption about the number of teams and length of the season or you can continue to go down the tree to find the root causes for those numbers. Make sure, however, that you do not make the problem too complicated. If you have a reasonable idea of the numbers, go with the assumption and start filling in the equations. Examples of digging deeper into the drivers of the number of games are estimating the number of teams by the number of major cities in the US, or estimating the number of games by the length of the season in weeks and an estimate of the average number of games per week per team. Once you have figured out the first branch, do not forget to do the second one. It is easy to get wrapped up in a long chain of reasoning and completely forget about the “practice branch” in this case. Write the number you came up with for the game balls on a piece of paper so you do not have to use valuable brain space to remember it. Most interviewers won’t mind if you take simple notes. A similar reasoning approach as above for the practice balls would try to estimate the number of teams, the number of players who practice on each team, the number of practice sessions, and the average life of a ball. Doing the Math Once you have come up with the logical approach, you have to fill in the numbers. Again, choose easy numbers for your assumptions. Even though the length of the NBA season might be 82 games, choose 80 because it is easier to use. It is important that you use the right equations to Page 2 Case Interview Study Guide
000.000 games played per year. On the other hand. and possibly do a quick check. This danger is especially prevalent since you will probably be a bit nervous. Remember. was determined to be a function of the number of teams and the length of the season. that makes 25 x 80 = 2. one of the most valuable skills of a successful consultant is the ability to ask the right questions. If it turns out to be around 50%. The only way to get better at it is by practice. Other interviewers start out with a simple two sentence summary. and test your business skills in addition to your logical reasoning skills. be careful not to spend too much time Case Interview Study Guide Page 3 . and it can be quite embarrassing to stumble on a simple calculation in an interview. It is important to gather as much information as you need. Think first whether it sounds reasonable. The amount of information you receive up front can differ greatly depending on the style of the interviewer and the type of case you get. you have probably made a logical or calculation error somewhere along the way. The correct answer is 1. correct? Wrong! Since one game takes two teams to play. it may make sense to write down some quick notes to help you remember the pertinent facts. and most likely the interviewer will volunteer additional information as the interview progresses or when you ask questions. and expect you to probe for more information by asking thoughtful questions. You don’t want to say with a big smile on your face that you have calculated the number of basketballs in the NBA to be 10 million. For example. In such cases.calculate your answers. and see if the resulting figure is reasonable in relation to what you would estimate the total NBA budget to be. it is useful to practice your arithmetic. BUSINESS CASES Business cases are generally longer than mini cases (20 to 30 minutes typically). Calculators are generally not allowed. it is OK to ask questions. Say that there are 25 teams (easy number) times 80 games in a season. Sanity Check When you have come up with a final answer. you could multiply the number of balls by an estimate of the average price for a basketball. The number of games. for example. and thus less able to think clearly. Since most of us are used to calculators and don’t often add up large strings of numbers in our heads. do a quick check to see if it is reasonable. Consulting firms rely heavily on general business knowledge and expect you to be able to integrate the concepts from your different core courses in analyzing a business situation. Much of your core course work is applicable in these cases. Gathering Information A case interview is typically an interactive process. lots of it. you have double counted the number of games. Some interviewers will give a lot of detailed information up front and will volunteer relatively little additional information later.
You can take some time on this. Page 4 Case Interview Study Guide . The critical skill being evaluated in the business case interview is whether you can solve a business problem in a logical and coherent fashion. For example. do not start to evaluate the company’s debt to equity ratio. and operating expenses. Some examples of frameworks and possible problems to which they apply are given below. It may become difficult for the interviewer to follow your logic. When the case is about reversing a trend of declining sales. but rather to use a logical framework to attack the problem. By analyzing profitability through its component factors such as revenues. if the reason for declining profitability is a decline in revenues. think clearly about what the problem is you are being asked to solve. you can quickly pinpoint in which direction you should focus your analysis. always make sure that you think out loud so the interviewer understands where your questions are coming from. It is no problem to be silent for a moment while you are thinking about your approach. Income Statement Used for analyzing changes in profitability. and you may seem to be taking a shotgun approach to solving the problem. Think logically about what a good way to approach the problem would be. Keeping that in mind. which is exactly what you don’t want to do. as well as in the interview. This makes you look thoughtful and is much better than starting to ramble and run around in circles. you will look closer at the marketing side of the company.” which stands for Mutually Exclusive and Collectively Exhaustive. you look at the operations and financing side. Analyzing the Problem When you have gathered your initial information. and these two factors are separate while together they make up the entire formula for profitability. Just keep in mind that creativity is also a skill highly valued by consulting firms. do not just look at the expense side of the income statement. and if the reason for the decline is an increase in expenses. they do not always fit the problem. While these are sometimes useful. A simple income statement is often a very valuable framework to use. cost of goods sold. if you are being asked to solve a problem about declining profitability. focus and time are of the essence. and blindly applying Porter’s five forces to any problem may make you seem like a robot in an interview. It is important not to ramble and jump from one hypothesis to the next. An important fact to remember is that your framework does not have to be some cook book chart you learned in one of your core classes.asking a lot of factual questions. This means that your framework should provide you with a number of different options that do not overlap (the ME of MECE) and together account for all possible causes (the CE of MECE). Profitability is a function of revenues and expenses. For example. In consulting. One term consultants love is “MECE.
When fixed costs are high. and whether these are likely to be fixed or variable. Use your common sense to understand what the important input factors are for a company. and you are bound to encounter at least one case centering around this issue during your consulting interviews. The distinction between fixed and variable cost is extremely important.A company can potentially increase profits three different ways: • Increase unit price • Increase the sales volume • Decrease total costs In analyzing these three drivers. Make sure you understand the cost structure of a company in analyzing its profitability. you may want to look at the following: Price • Demand elasticity • Market power • Product differentiation • Is a premium justified? Sales Volume • Increase sales to current customers with current products • Increase sales to current customers with new products • Increase sales to new customers with existing products • Increase sales to new customers with new products Cost • What costs are fixed and what costs are variable • To what extent and in what time frame are costs avoidable • How are costs allocated Fixed vs. Carefully analyze the allocation of overhead expenses in this framework. Case Interview Study Guide Page 5 . Variable Cost Used to analyze cost structures and changes in profitability. there are often opportunities for economies of scale or scope. Also important to assess economies of scale and scope. Capital intensive industries such as manufacturers typically have high fixed cost which makes capacity utilization a crucial part of their business.
Four C’s A general tool for analyzing a company and its environment. you have to evaluate the different factors that will determine its success. To analyze a company’s strategy in terms of its chosen market position. This capacity and cost structure should be difficult to imitate by the firm’s competitors in order to sustain the profitability. Customers • What do the customers want and need? • How will we satisfy those needs? • What is most important to them? • How much will they pay for it? Competitors • What are your competitors doing? • What are their strengths and weaknesses? • How are they meeting the customers’ demands? • What is their cost structure? Capacity • What is your company’s capacity in terms of: ° financial? ° organizational? ° production? ° marketing? • What are your strengths and weaknesses? Costs • What is your cost structure? • How is overhead applied? Page 6 Case Interview Study Guide . Customers’ needs have to be known and the firm’s capacity and cost structure need to be able to satisfy those needs at an acceptable level of profitability.
This tool is similar to the Four C’s above. It is important not only to analyze what the firm can and cannot do. Remember that the four P’s are the implementation of a strategy that first depends on the selection of a target customer segment and a product positioning. but also how these capabilities can help the firm take advantage of any opportunities. • • • • Product Price Place Promotion Case Interview Study Guide Page 7 . • • • • Strengths Weaknesses Opportunities Threats Used to analyze the capabilities of the company Used to evaluate the company’s environment Four P’s Useful for marketing related cases such as: • New product introductions • New market developments • Market share increases Everyone should be familiar with the four P’s of marketing. or ward off any threats that occur in the environment.SWOT Another general tool for analyzing a company in its business environment. They are used as a framework for putting together a marketing plan.
POTENTIAL ENTRANTS Threat of new entrants INDUSTRY COMPETITORS SUPPLIERS Bargaining power of suppliers BUYERS Bargaining power of buyers Rivalry among existing firms Threat of substitute products or services SUBSTITUTES Page 8 Case Interview Study Guide . no producer will be able to earn super natural returns. In a perfectly competitive market. and thus the ability to earn super natural returns. Porter’s framework is a way to assess the competitiveness of a market. The ability to earn above market returns depends on the degree of efficiency of the market.Porter’s Five Forces Framework Used to evaluate the attractiveness of an industry in terms of the ability to earn high returns.
IBM builds the case and provides the services. Since the component supplier Intel and the software supplier Microsoft both operates in more or less of a monopoly position. Another one of Porter’s contributions. and Microsoft supplies the operating software. Often used to determine which party extracts the highest returns in creating the goods or services for the end customer. The good that the end customer receives is a combination of hardware. and will thus receive a much smaller portion of the cumulative value added. IBM has to compete in a market place with many competitors and low barriers to entry. software. and support services.COST OF PRODUCING VALUE Firm infrastructure Human resource management Technology development Procurement Operations Outbound Marketing logistics & sales Inbound logistics Service m a r g i n Case Interview Study Guide Page 9 . A prime example is the personal computer industry. MARGIN = TOTAL VALUE TO BUYERS .Value Chain Analysis Useful to analyze how value is created for the customer and which parties are involved. they are able to extract most of the value added which goes into the final product. the value chain analysis is helpful in trying to understand how an industry is structured. Intel supplies components.
and start analyzing it branch by branch.Seven S Framework Useful in determining sources of competitive advantage for a company. It emphasizes that all these attributes need to form a network in order to reinforce and sustain each other. Peters and Waterman’s Seven S framework helps you understand the factors internal to a company that can create a source of competitive advantage. “Hardware” • Strategy • Structure • System “Software” • Style • Staff • Skills • Shared Values Structure Strategy Systems Shared Values Skills Style Staff Applying the Framework Enough about frameworks. it will be very hard to copy the entire network. While it may be possible to duplicate any one of these attributes. you need to apply it. Listen carefully to any clues the interviewer may give you. Once you have selected one. When you go down the Page 10 Case Interview Study Guide . The same rules as in the mini case apply: lay out the framework for the interviewer.
For example. and physical condition of the machines. when the interviewer says: “Are you sure about that?” or “Is that the only possible solution?” you should probably reevaluate your analysis. Consulting firms value intellectual curiosity. You should appear to be interested and excited about the challenge of solving a business problem. and state your assumptions. list the alternatives and suggest empirical research that may be helpful in practice to test which causes are indeed to blame. if you find out that machine failure accounted for a shortage of supplies which led to decreased sales and loss of profitability. but you realize from subsequent information the interviewer has provided you that it is really an operations problem. Case Interview Study Guide Page 11 . As in any interview. just say that you will use a different approach to probe deeper into that aspect of the case. as long as you demonstrated your ability to think clearly and to apply the correct business tools to get to the causes of the problem. The firm probably took weeks rather than just thirty minutes to get to the point where you stopped in the interview. That helps the interviewer trace your line of thought and buys you some time to think about where to go next. (If you’re not. if you interpreted the problem to be a marketing problem from the initial information you received.) Always think out loud so the interviewer understands your train of thought.wrong path (or a different path from what the interviewer had in mind). While finding the cause for a problem may be very important. you can summarize what you have found out up to that point. This does not matter. it is important to just be yourself and be relaxed when analyzing the problem. Because of the complexity of some of the cases you will be presented with. For example. Just summarize what you have found out up to that point. Then make a suggestion about what could be done to alleviate any of these problems. you will often be redirected by comments from the interviewer. it may not be possible to get to the point where you start making suggestions for improvements in the time frame allotted. When you get stuck. you should reconsider whether consulting is the right field for you. For example. and should be willing to volunteer the information. and how you would proceed with your analysis if you’d had the time. Summarizing your Findings When your analysis has yielded a number of different possible causes for the problem at hand. raw material supplies. suggest that the company research the maintenance procedures. When you need a piece of factual information to help you along with your analysis just ask. The interviewer will realize its relevance if she is able to follow your logic. it is equally important to find a solution. If you learn from the comments that the type of framework you have chosen does not fit the problem. do not be afraid to discard it and use another one.
and if there are numerous companies who possess this technology it may be altogether unfeasible. (c) pressure distributors not to sell fake diamonds. and (f) close the business and retire. (b) try to establish legal or trade group certification criteria for diamonds. This type of case is an opportunity to show your creativity.MINI CASES Mini cases fall somewhere in between estimation cases and business cases. For example. They are typically short and focus on a single problem. and probably is not unduly expensive given the sales volume retained. (d) start a public relations campaign to convince consumers not to buy fake diamonds. try to think of novel approaches to a problem.” the desired outcome could be that DeBeers maintains its market position and does not experience heavy price pressures while avoiding high expenditures. it is useful to think in terms of a decision tree which covers all the possible courses of action. Define the Decision Criteria First establish what the qualities of the desired outcome would be. Evaluate Outcomes of Choices Against Decision Criteria Once you have formulated the choices. which of course means that their love for them is fake as well. if the problem you are presented with is: “How can DeBeers respond to fake diamond manufacturers. To find a solution to such a case. and evaluate the merits of the decision in light of your decision criteria. go down each branch. and make a choice from those based on which one satisfies them best. Formulate the Different Choices The next step is to formulate the first level of your decision tree. however. making assumptions. many focus on solutions to a problem rather than on finding out the underlying causes of a problem such as in business cases. choice (a) would allow DeBeers to either use the fake diamond technology itself to profit from the technology or would allow it to shut it down and continue business as usual. (e) lower the price of diamonds to force the fake diamond manufacturers out of business. While not true for all mini cases. Page 12 Case Interview Study Guide . Choose an Option Select which decisions meet all the criteria. Option (b) may allow DeBeers to pursue a successful differentiation strategy.” This option satisfies the first two decision criteria. The cost of this option may be prohibitive. For example. In the DeBeers example. some possibilities could be to (a) purchase the fake diamond manufacturers. especially when coupled with a public relations campaign decrying “all those cheap men who buy their loved ones an el cheapo fake diamond. Therefore it will probably fail under the “Avoid high expenditures” criterion.
These are merely examples of applying frameworks to problems and following through on the logic. interview workshops organized by the Consulting Club. You can simply make up some of the facts to fill in the picture. Five estimation cases are worked out for you as examples. You can make up additional facts as the case goes along. Talk to second years who have interviewed with the firm before. and that is PRACTICE! Use the resources available to you such as mock interviews offered by CD&P. helpful second years. PRACTICE CASES Below. Possible scenarios are given for the person playing the interviewer in the exercise to help guide the discussion. try to keep in mind the type of work that they do. You can attend these or watch the video tapes at CD&P. Most likely. There are a number of practice cases provided in this guide. Almost everyone can use the company they have worked for. Get together with some of your friends interested in consulting and give each other cases. Just read an article about a company and use it as a case. and most of all your class mates. When interviewing with a firm. Another great source of practice material is the Wall Street Journal. You may even want to tape your interviews on a camcorder so you can watch your body language and your reactions to the interviewer’s comments and questions. We have also worked out five business cases and supplied you with a list of additional cases you can use for practice with your class mates. we have compiled a number of cases that were used in the 1995 recruiting season as well as some cases from last year’s study guide. As in any case interview. and ten more cases are given for you to practice with. They are divided in estimation cases. and mini cases. two mini cases are worked out and a few more are given as examples. or maybe a company that a friend of theirs has worked for.HOW TO PREPARE FOR THE INTERVIEW There is only one good way to prepare for a case interview. no one solution is the right one. and ask what type of questions they were asked. Several consulting firms organize case interviewing work shops on campus. business cases. but it is also easy to make up some of your own. Finally. Case Interview Study Guide Page 13 . the interview cases will reflect the particular company’s area of expertise. as the basis for a business case.
especially in Northern States. Assume that of 250 million people in the US. That seems to be reasonable. the total restaurant purchases come out to be 240 million purchases / 16 servings per gallon = 15 million gallons. First. Ice cream sales are likely to be somewhat seasonal. and that they do so at a pace of twice per month on average. Now assume that one out of ten times. 80% like to eat ice cream. That makes 250 million people x 80% x 12 months per year x 2 visits per month = 4. Since there are 16 half pints in a gallon. and assume that the average serving is one pint. let’s analyze the retail sales. retail sales will be: 200 million people x 9 months x 2 servings per month x 1 pint / 8 pints per gallon = 450 million gallons. Total purchases of ice cream are 465 million gallons per year. That makes 200 million possible consumers. assume that people eat ice cream twice a month. Assume that 80% of the US population frequents restaurants. Page 14 Case Interview Study Guide .Estimation Cases How many gallons of ice cream are sold in the US each year? Ice cream can be sold through retailers and restaurants. Assume that 50% of these restaurants offer ice cream. That makes 4. which means that the average annual ice cream consumption is 465/250 or a little less than 2 gallons per head of the population. for an average of nine months for the whole country. so assume an average selling season of eight months in the North and ten months in the South. Since there are eight pints in a gallon.400 million possible purchases.800 million x 50% = 2. the customer will order ice cream.800 million restaurant visits per month. Now assume that the average serving is half a pint.400 million x 10% = 240 million purchases. During the season. That adds up to 2. Do a quick sanity check by dividing this number by 250 million people.
100 million / 20 x $2 which is approximately $200 million. If the US population is 250 million. That means that kids 16 and under represent 16/80 = 20% of the population. Also assume that given the fanaticism and riches of this market segment. The total size of the market expressed in Dollars is therefore 2. Assume that Band-Aid holds 75% of the US market for bandages. Assume there are approximately 20 bandages in a package. How many pairs of skis do you expect to sell in the US market as an up-market new entrant? Assume 250 million people in the US. 20% equals 50 million kids. and a package sells for $2. they replace their skis twice as often as the average person.000 pairs of skis = 20. or 200 million. This means that every year 1/5th of the skiing population buys a new pair of skis. for a total of 50 million x 6 cuts = 300 million bandages. That makes for 900 million bandages. Assume that the average life of a person is 80 years. The market can be segmented into two main categories of users: kids 16 and under who tend to get cuts more often. Case Interview Study Guide Page 15 .100 million bandages. That means that the market segment is 5 million x 10% x 2 = 1 million skis. Now assume that 10% of the skiing population belongs to the “up-market” segment.200 million bandages.200 = 2.How big is the US market for Band-Aids? (the brand) Band-Aids are used to cover up minor cuts. Band-Aid holds 75% of this market which is equal to $150 million. and adults over 16 who are a little more careful.000 pairs of skis. which equals 25 million people. is 900 + 1. Assume that it takes on average three days to cure a cut and bandages are replaced once a day. Assume a pair of skis lasts five years on average. you will be able to attain 10% of the average sales volume in the first year. Assume that they get a cut once every two months on average. Once every two months equals six times per year. That is 2 cuts per year x 3 days per cut x 200 million people = 1.000 pairs of skis each year. and the population is evenly distributed. Assume that as a new entrant. with bandages being replaced every day. That is 10% x 200. then. Assume there are five major manufacturers in this segment at this time. The adults represent 80% of the 250 million people in the country. The total number of bandages. 10% of those people ski. That is 5 million pairs of skis per year. Assume that they get a cut once every six months which lasts three days. That means that each sells 200.
000 horses is approximately one horse for every 500 humans.000 + 15. and that it has approximately 100 carriages to move people around. That is plausible.000 carriages in the US. and that each day has 8 races. one out of 100 rides horses at a riding school.5 million people in the population. Now assume that for every five people taking riding lessons. there is one person that owns her own horse. That is approximately 15. Page 16 Case Interview Study Guide . and a horse normally rides two hours a day. A quick sanity check: 250 million people for 460. That is approximately 50 races per week. Repeat the math for the population as a whole. That means that there are 200.000 + 30. there are 50 x 6 = 300 different horses per race track. Assume that of this 80%. That means that there are 100 race tracks in the country. (3) racing.000 horses for 2 million riders at riding schools. If there are six horses per race. That is the same ratio as the carriages.000 horses. Assume each carriage is drawn by one horse. then one horse is sufficient for 10 riders. five days a week. 300 horses x 100 race tracks = 30. That makes for 15. That makes for 2 million riding school customers. If each person rides a horse once a week for an hour.000 people per carriage. Assume that there are races on six days per week.000 + 200. (4) carriages.000 race horses in the country.000.000 = 460. and (5) police. there must be approximately 15. The total number of horses in the country is 200.5 million people.How many horses are there in the US? Assume horses are used for the following purposes: (1) riding schools. Assume that the Philadelphia police has 100 horses. Assume that there is one race track for every 2. and you get another 15.000 horses. Assume that the city of Philadelphia has 1.000 + 15.000 horses on the police force. Assume 80% of the population of 250 million is physically able to ride a horse. (2) personal pets. That is 2 million riders / 5 = 200. and every horse races once per week. If this holds for the US as a whole.
That is 200 million games per year. Of those 200 million people. How large is the market for Cool Whip brand dessert topping in Mexico? 2. How many hospitals are there in the US? 4. How much wine is consumed each year in the US? 5. There are 250 million people in the US. Let’s assume that the average golfer plays ten times per year. Case Interview Study Guide Page 17 . Additional Estimation Cases 1. the golfer loses three balls. How many pennies are in it at any time? 9. let’s assume that one out of ten plays golf. That is 3 x 200 million = 600 million balls per year that need to be replaced. 6. That is 20 million golfers.Estimate the annual demand for golf balls in the US. Estimate the number of Porsches that will be sold in the US this year. 80% is physically fit enough to play golf. Estimate the number of Louisville Slugger baseball bats produced for the Major Leagues each year. How many tennis balls were sold in the US last year? 3. Estimate the number of practicing medical doctors in Philadelphia. How much does a Boeing 747 weigh? 8. I own a shopping mall. 7. How would you estimate the number of gas stations in the US? 10. Assume that during every game. Let’s assume that of those.
(2) small and medium sized corporations. Since we already know that volume is increasing. The company has two choices. ! Prices are falling and expenses are edging up. A possible segmentation of the personal computer market could be (1) large corporate buyers.Business Cases Text after the symbol ! represents additional information supplied by the interviewer. It is necessary to compare the cost structure of our client with that of its competitors. ! The company manufactures personal computers and currently sells most of its products through a direct sales force to large corporations. prices must be declining or costs must be going up. You hypothesize that large corporate buyers are likely to value strong after-sales support. Try to find out more about the type of product and the customers. Why? What should it do? This is an example of a case where you can apply the general income statement model. These segments are likely to have different needs and different price points. ! It turns out that your client has a very strong service department and its products are consistently at the cutting edge of technology. ! The company’s pricing policy is to match the lowest price in the market. there must be an over-supply of computers or they must have lower cost structures which enable them to lower prices. Page 18 Case Interview Study Guide . or a combination of the two. These strategies are equivalent to Porter’s generic strategies of low cost production or differentiation or focus. There are two possibilities. The new competitors are also at the forefront of technology but distribute their products through retail outlets and offer little support. If competitors are lowering prices. A computer manufacturer was gaining market share but experienced declining profits. Either the company has decreased its prices unilaterally to gain market share or it is following the market. First analyze the decline in prices since that appears to be the major factor contributing to the declining profits. and are somewhat less price sensitive than the other two segments. You need to find out how your client’s product/service bundle matches these needs. have a need for advanced machines. ! New low cost producers have entered the market and are trying to under-cut existing manufacturers. It has to either lower its cost structure to be competitive with the new entrants or it has to focus its attention on different customer segments in order to avoid the head-on competition. and what the new competitors are offering. and (3) consumers.
The second part of the equation is the expense side. Given the declining profitability. and what services are valued most by the customer. While the sales and support staff give the company an advantage in servicing its market segment. You need to find out where expenses are increasing. Case Interview Study Guide Page 19 . ! The major increases in expenses are on the sales side. The company has aggressively added new sales and support people to keep pace with its growth. The increase in market share is probably the result of the fact that its price point is lower than that of its traditional competitors in its market segment. Some functions may add little value while costing a lot of money. yet is matching their aggressive prices.It appears that the company may be pricing its products the wrong way. The company may want to raise its prices. it has to be careful that this service does not become too expensive relative to the price premium it allows the company to charge its clients. it appears that the demand is fairly inelastic. It is not directly competing with the new entrants. there may be opportunities for automating sales support functions in order to make sales and service personnel more productive. Also. The company may want to do a time study to find out what the staff is doing. because the increase in sales is not making up for the decreased margins.
modem data lines and coffee makers in the room) while service levels and location are similar or slightly less than those of its competitors. while vacation travelers are mainly concerned with price. This is much like the airline industry. ! Every location has a number of competitors within close proximity. The choice depends on the price elasticity of the market and the likely reaction by competitors. Now that you have learned in which markets the hotel competes. therefore is not a good idea. medium. you may want to consider a differentiated pricing policy. Much like in the airline industry. you have to identify what its competitors are. ! We conducted a survey of business and vacation travelers and found out that business travelers value service and convenience above other things within a given price range. Let’s assume that the prices currently charged by our client and its competitors result in a supply and demand equilibrium at a certain occupancy rate that is less than 100%. since these are likely to be vacation travelers. Lowering prices only makes Page 20 Case Interview Study Guide . depending on the location. and how they make purchase decisions. and by the pricing of substitutes such as up-market or budget type of hotels. Our client has a choice of charging more than the market clearing price. charging the same. Our client’s amenities are a bit better than those of its competitors. You hypothesize that business travelers are likely to be a little less price sensitive than vacationers. These hotels serve the same market segment. Since the hotel caters to different clients at different locations.e. To start with. The competitors’ prices for a week-day stay range from $90 to $120 per night and from $75 to $95 per night on the weekends. so you will first need to find out what you sell and to who. Does the hotel chain cater to vacationers or business travelers? Is its product/service consistent with a low budget. there is sufficient capacity to meet customer demand. A price war. there will be an incentive to lower prices to increase demand because marginal costs for a hotel room are minimal. however. Since hotels will likely have high fixed cost associated with the operation of the real estate. or up-market positioning? ! The hotel caters to both vacationers and business travelers. It is an attribute of the product or service that you sell.How would you develop a pricing strategy for a large hotel chain? Pricing is one element of the marketing mix. (i. In other words. You have to check what travelers value in their choice of hotels. price competition may erode industry profits because competitors will likely match any decreases in price by one hotel. The range of possible prices you can charge will be limited by the pricing policies of your direct competitors. and its service and amenities are considered to be in the middle of the spectrum. you can create a differentiated pricing scheme by giving discounts to guests who stay over a Saturday night or who stay longer than 4 days or so. or charging less.
but it is not known whether it is elastic enough. probably not. The remaining choice. Charging higher prices would probably lead to decreased demand because our service level (which is important to business travelers) does not justify the premium over competitors’ prices. Case Interview Study Guide Page 21 . One possible way to improve yields is to utilize a more sophisticated market segmentation.sense if demand is elastic. Vacation travel would be somewhat elastic. is to charge market prices. and a new lower equilibrium price could be established which leads to sufficiently increased demand to offset the margin losses. and rather than having two price classes (business and vacation). Through yield management techniques. Think about whether business travelers demand would be very elastic. establish more segments with different price points. then. the chain may be able to better manage its fixed capacity and increase average yields.
and by competition from similar and substitute goods. The company wishes to sell the patent (which is valid for twenty years) so that the inventors can pay off their venture capitalist and retire to an island with lots of sun and palm trees. What is the value of the patent? The price of a product is determined by the market. This market’s demand would probably be elastic. There is a glut of land available. ! That’s a bit of a problem. then. ! Sugar cane is grown in entirely different climates and is not considered to be a competing product in this market. because sugar is already a pretty cheap staple product and rarely the most expensive ingredient in something. then. (Let’s look just at land for simplicity here. but let’s assume demand for sugar is fixed for now. would you expect anyone to consume more sugar (bake more cookies or make more lemonade) when the price of sugar drops? Probably not. will be based on the value of the product to the buyer. You might want to think about other uses for sugar such as making alcohol to use as a substitute for gasoline. then the only possibility for the farmer is to use only half the land to grow the same amount of sugar. the price will have to fall. and it is unlikely that the farmers will be able to sell their land at all within a period of a few years. Page 22 Case Interview Study Guide . The farmer using our new seeds has two possibilities: he can grow twice as much sugar with the same amount of land and labor or he can grow the same amount of sugar with half the land and labor. This is an example of a clue where the interviewer does not want you to pursue this any further. The only possible competition. is from regular sugar beet seeds. Substitute goods are regular seeds and possibly seeds for sugar cane.A small biotech company has come up with a revolutionary new seed for sugar beets which are exactly the same as regular beets but yield twice as much sugar. there are no similar goods.) ! Do you believe the farmer can sell twice as much sugar? Remember that MGEC course? One individual farmer in a commodities market should be able to sell all his increased output at the market price. You need to determine the value of the land saved. Seeds need to be grown into beets which requires land and labor. ! That is a good point. That rules out one possibility and makes the solution easier. and that agricultural goods are commodities sold to a dispersed market of buyers who individually can exercise little power over the price. The price. Having established these facts. This could be determined by the market price of agricultural land times the area saved. and therefore no competition. get back to the original line of the argument and continue. To start out with the competition from similar goods: since this is a patent. Let’s assume that there are no inputs for the new seed technology (it’s already produced and can simply be cloned). Using common sense. but if every farmer uses the new technology and doubles his output. The question then becomes whether the demand for sugar is elastic. The value of that product should be compared to the value of our new seeds. If demand for sugar is fixes.
See some of the examples above on how to do this.).5% in refining. ! How would you estimate the annual demand for sugar? At this point you drop your head in exhaustion for you will have to do an estimation case within a business case. the processing cost of the new beets will be 25% higher per beet than the old ones. then shipped to the sugar refinery by truck. ! Growing the sugar is 40% of the cost. trucking expenses from the farmer to the refinery are cut by 50%. 20% of this 100% on 50% of the land equals 10%. trucking 10%. The sugar refinery makes sugar crystals from the beets and packages them. and distribution 20%. refining 30%. 50% x 10% = 5% in trucking. there are no cost savings there. The sugar that reaches the end consumer is the same sugar and the same amount that would be shipped if old seeds were used. the amount of beets shipped would be only half the traditional amount. The beach and palm trees are seemingly starting to slip away from our inventors. From the farmer to the refinery. Next you need to find out how much each step contributes to the final price of sugar. cabbage grows well in those types of climates. It seems that the farmers will not derive a whole lot of benefit from the new seeds. Next you have to take the net present value of twenty years (the length of the Case Interview Study Guide Page 23 . How does the sugar finally reach the consumer? ! Sugar beets are produced by the farmer. Multiply this number by the annual sugar demand and you get a dollar value of annual savings. The packaged sugar is then shipped to retailers where it is distributed to the end consumer. and 25% x 30% = 7. and production costs are reduced by 25%.Oops! Now what? Another possibility is to see if the farmer may have other uses for the land.5%. This adds up to a total savings of 16. Trucking expenses should drop by 50%. Therefore. The savings are 10% x 40% = 4% in growing. ! As it turns out. The problem is that the profit margins on cabbage are only 20% of those on sugar beets. The refinery should be willing to pay the farmer a higher price for the new beets. For instance. Maybe he can grow a different crop? ! It is possible to grow other crops on that type of soil. The question is whether the refinery also realizes any production benefits from the reduced number of beets. The total savings from the new seeds can be summed up as follows: farmers gain 10% on their profit margins from the opportunity to grow cabbage on half their land (100% is original profit. however. A good way to approach this is to use a value chain or process flow. You have looked at the end consumers of refined sugar and at the producers of the beets now. there will be a 25% production cost savings to the refinery. If the number of beets is reduced by 50% and the cost per beet is only 25% higher. What other players could possibly gain from the new invention. Assume that the resulting figure is $2 billion.
5% x $2 billion. Don’t worry. they won’t expect you to actually calculate this off the top of your head.patent) of 16. as long as you tell the interviewer that this is the approach you would take. Page 24 Case Interview Study Guide .
Reliability and pricing are the most likely factors for an industrial buyer. We know that our client’s product lasts longer. If that is the case. Loss of market share can be due to competing products or substitute products. Case Interview Study Guide Page 25 . ! Our battery lasts for a total of five years while our competitor’s only lasts for four years. we would like to find out how this company has been able to take market share so quickly in an otherwise stable industry. Next we need to know what the price differential is. and who the competitors are. growing at approximately 3% per year. The only large change in the market place is the emergence of a new Portuguese competitor.A battery manufacturer in the UK is experiencing declining sales. we need to know how much longer. and to verify our client’s claim that the increased quality is worth the price. Sales are made to OEMs (i. You want to know who the customers are. fork lift manufacturers) and for replacement purposes to large manufacturers and distributors who use fork lifts. How would you approach this issue as a consultant. however. It is necessary to evaluate the company’s price/product proposition to compare it to ours. What is the trend in market demand? ! Demand tends to be very stable. Customers are located throughout Europe. ! Our client’s product is superior in lifetime and quality to that of the Portuguese competitor. First let’s analyze the market. The next step would be to evaluate the trade-offs among these two attributes. Are there any new substitute products or new competitors? ! There have been no major changes in technology. we need to find out what the customer is looking for when purchasing a fork lift battery. ! The company sells batteries for fork lifts. A decline in sales can be caused by two factors: declining market demand or loss of market share. but we feel the additional quality more than makes up for this differential. what the product is. our decline in sales must be due to declining market share. This company has managed to grow to approximately the same size as our client in a relatively short period of time. Our price is higher as well. we are lagging on the latter. Now that we have established the different value propositions of the two companies.e. The majority of sales are to the latter. and while we outperform our competitor on the former. There are five or six other European manufacturers which are of similar size to our client. Next. Its product is superior in lifetime and quality to its competitors.
so moving is not an option. we will need to evaluate how many batteries we need per Page 26 Case Interview Study Guide . however. so will need to be recharged periodically. Let’s look a little bit further into the cost/benefit trade-off.) Fork lifts will most likely ride around a plant or warehouse moving goods around. That means that we can assume switching costs to be negligible. lowering costs is not an option. So far we have only considered the purchase price as a cost of the product. the battery requires 24/10 x 350 charges of 10 hours each per year. Our client is not willing to leave his lukewarm Guinness and jellied eel behind. but due to the better design of our battery. This equals 8. Does their cost base enable them to do so while maintaining an acceptable level of profitability? ! Our client’s cost base is substantially higher due to the higher quality of its products. evaluate the switching costs. output efficiency is higher.500/5 = £300 for our product and £800/4 = £200 for the competitor’s. let’s assume a 24 hour a day need for the fork lifts. ! The hourly rate is £0.500 while that of our competitor’s costs £800. let’s assume the time is negligible. We need to know the price of electricity drawn per hour. This efficiency difference needs to be translated into costs and value for the customer. The difference is £280 per year. Since the batteries are out of commission while charging. faster turn-around time. While the battery is recharging. Is there any difference in charging time or efficiency between the competing batteries? ! It takes 8 hours to fully charge our battery which will then last for 12 hours. First.10. The batteries draw the same amount of electricity per hour while charging. just use your common sense. You need to know how long it takes to switch the battery.400 hours or £840 per year. For our competitor. it will require 24/12 x 350 = 700 charges of 8 hours each for our battery. Maybe our client should reduce its prices. The battery powers the fork lift.600 hours at £0. Our competitor’s battery takes 10 hours to charge and can be used for ten hours. the fork lift will be out of commission or the battery will need to be switched which takes time. (You don’t need to be an engineer to figure this out. If the fork lift will be used 24 hours per day for say 350 days in a year. Given the fact that our clients are large industrial companies. Therefore. Next. ! This only takes a couple of minutes. It is possible that there are additional costs involved. we need to evaluate the use of the batteries. they will probably work around the clock. In addition. That is 5. That is not looking good on the surface.! Our battery costs £1. For simplicity. and fewer switching operations.10 or £560 per year. labor expenses are significantly higher in Great Britain than in Portugal. To find out. however. That means that the cost per year is £1. evaluate the energy savings. Therefore. Value is derived from lower energy requirements.
but the energy savings are £280 per year. That is a cost differential of £100 per fork lift. Next we need to find a way to relay this information to the customer. We may want to consider using a direct sales force to explain these benefits given the complexity. the battery is charging for the entire moving time. each fork lift requires one battery to move while another is charging for 8 of the 12 moving hours or 2/3. For our battery. That means that there are two batteries required for each fork lift. The annual purchase cost per fork lift is therefore £300 x 1 2/3 (£500) for us and £200 x 2 (£400) for the competition. That means that our battery is a better value than that of our competitor’s. For our competitor’s battery. The purchase cost of our battery is £100 higher per fork lift per year. because they apparently do not know about this benefit given our loss of market share.fork lift. Printed materials may also be useful to describe the benefits in detail. Case Interview Study Guide Page 27 . Assume that our clients operate fleets with multiple fork lifts which can all share the same batteries. That means that we need 1 2/3 batteries per fork lift.
and discount these cash flows at an appropriate discount rate to calculate the net present value. Another alternative is to evaluate the cost of launching a new satellite. A large company has offered your client (an entrepreneur) $10 million for the satellite. The purchase price of the satellite is unimportant. Due to the orbit of the satellite. Looking at alternatives. Taking this into account would be an instance of the sunk cost fallacy. it is possible to update computer systems on a daily basis. Given the time frame that the satellite is available. Satellites can be used for transmission of data such as telephone. We could evaluate the demand for telephone services and compare the costs of alternative transmission technologies such as wire and land-based radio transmission. and he wants to know whether he should accept the offer and sell it. we first need to find out what the most productive use is. ! The cost of launching a 24 hour satellite is $5 million more than launching a 12 hour one. There is only one problem. we can assess the use of the satellite for different data transmission purposes. This way. We might want to investigate the possibility of launching a second satellite with an opposite pattern to cover the full twenty-four hours. it may be possible to transmit data during the evening and night. They may also be used for taking pictures of the earth (including spying activities) or to do research by observing events on earth and in space. it is necessary to assess the cash flows it can generate at its most productive use. Knowing that. That means that the value-added of our satellite would only be $5 million. ! Good idea. This cost would need to be compared to that of launching a satellite in an orbit that would allow twenty-four hour a day transmission. This case is an example of one where you are asked to use your creativity and generate some ideas. Therefore. TV. This may be useful for companies like banks who update their records daily. Most television shows are watched during the late afternoon and evening hours. We can evaluate the demand for television in the former Soviet Union and determine what the costs of alternative transmission technologies such as cable or non-satellite transmission would be. it can only send and receive signals during twelve hours of the day. one possible opportunity which may not be unduly limited by the time frame is television broadcasting. That is a problem. To determine the value of the satellite. Page 28 Case Interview Study Guide . because it will eliminate a lot of possible uses unless this limitation is somehow offset. Take for example telephone services. Another possible use is for transmitting computer data. ! This satellite is of the data transmission variety. from 3:00 pm until about 3:00 am.A client has bought a Russian satellite after the break up of the Soviet Union. or computer data.
Develop a growth strategy? Possible Scenario: • 50% of the market is in the hands of small independent retailers. Your client operates a steel mill and is concerned about vulnerability to market cycles. Case Interview Study Guide Page 29 . The share of large chain stores has been growing rapidly. and inventory holding costs. some of them in cooperatives such as True Value. • There are four large national hardware store chains. Demand in the trough of a recession can be as low as 70% of the demand at the peak of the business cycle. • The market is expected to grow slowly. • Demand for steel is highly cyclical. • Primary costs consist of COGS. • Labor unions are inflexible with regard to work rule changes. • A community of 50. rent. What should it do? Possible scenario: • Fixed costs are 50% of total cost. • Increased competition from mini-mills and foreign competitors. • Chain stores compete among themselves based primarily on price and selection. The former makes up 40% of the market and the latter 60%. and the other 50% is held by large chain stores. • The market pressures the company to pay out excess cash in the form of dividends during upturns in the economy.Additional Business Cases Your client is a large hardware chain.000 people in a 5 mile radius around the store can sustain one large hardware store. • Customers are primarily consumers. and can be segmented as advise seekers and price seekers.
• Trains require a minimum load of 100 cars.500. You are the head of a large car manufacturer in Europe. • Trucking cost from the distribution point to the dealerships are $200 per load of up to ten cars. • Total demand for the manufacturer’s cars is 1 million vehicles per year. • There are ten European countries including the one where the factory is located. • Demand for flights in the civilian airline industry is expected to grow by 8% per year for the next 15 to 20 years as more and more third world countries grow their economies. You have the choice to transport the cars by train or truck.The CEO of a large international manufacturer of aircraft engines wants long-term strategic recommendations. Which mode of transportation do you choose? Why? Possible scenario: • Cars are currently shipped by train to central distribution points in the different European countries. • Average truck load shipped to a dealer is 6 cars. The factory also serves as a distribution point for that country. What do you tell him? Possible scenario: • The market is an oligopoly with four major producers of airline engines. All cars are produced in one major plant and are distributed all over Europe. • Aircraft engines are typically purchased separately from aircraft. • The cost of shipping one car by train to a distribution point is $100. purchases it. • The cost of transporting one truck load to any point is $1. • 50% of car buyers do not take delivery from dealer stock. and has it delivered to the aircraft manufacturer for installation. 10% of this capacity is not fuel efficient enough to operate at current average load factors. • The distribution points are owned by the manufacturer. • The economic life of an engine is approximately 15 years while the physical life is 25 years. Page 30 Case Interview Study Guide . • The market consists of civilian passenger and cargo airlines and governments who purchase planes for their military. but wait for factory delivery. From there they are shipped by truck to the various car dealerships. • Demand for military use is expected to decline by 2% per year for the next 5 years as the result of the end of the cold war. • Operating expenses of a distribution point are $1 million per year. • Engines represent 20% of the cost of a new aircraft. and then grow by 3% per year thereafter. The buyer of the aircraft specifies the engine. • Trucks have no minimum load and can transport up to 10 cars at a time. • The civilian airline industry has approximately 30% over-capacity at this time.
with most of the plants being located in Germany and France. • Car makers are dispersed over Europe. • Purchase decisions are based on price. You notice that one of your five product lines is losing market share. Case Interview Study Guide Page 31 . • It would be extremely difficult for our client to match the cost structure of the mini-mills. while being subject to fluctuations in the economy. • Your company has a reputation for high quality. They would be able to manufacture any of the five products mentioned above with the exception of the thin plate body panels. • Low cost mini-mills are taking over market share. ability to adhere to quality standards. All your manufacturing capacity is currently located in the US. bumper attachments. The trend is to reduce this number.000 different suppliers. beams used for structural support in doors. • Exporting products would be 50% cheaper than setting up new manufacturing sites as a result of avoiding fixed costs and increasing economies of scale and learning curve opportunities. • In addition to price. The decline in demand is for the structural beams. and speed and reliability of delivery. What are the possible sources? What would you do? Possible scenario: • All of your five product lines are sold to car manufacturers. and work closer with the suppliers. How would you go about it? Possible scenario: • A typical car manufacturer uses 5. The products are: thin plate steel for body panels.A US auto-part manufacturer plans a market entry in Europe. • Mini-mills are only able to manufacture lower grade steel. steering column parts. • Governments offer tax incentives to locate manufacturing plants in their countries. and engine attachments. You are the head of a large steel group. • Car manufacturers are trying to reduce the number of parts suppliers and forge closer ties with suppliers. Your pricing is competitive. • Car sales are expected to grow modestly over the next ten years. but at the high end. quality and speed and reliability of delivery are important purchasing decision factors.
California law mandates that by the year 2000. Should it? Possible scenario: • The manufacturer is currently operating at 90% of capacity. • The core competencies of the utility are in building and operating large scale generators of both fossil fuel and nuclear varieties. 10% of all cars sold have to be powered by electric engines. • Demand for paper is expected to grow by 4% per year and is very inelastic. Should the utility enter this market. and if yes. which means that utilities will have to compete in an open market. • The break-even operating level of a new plant is at 70% of capacity. Therefore. • The industry is operating at 80% capacity. • The total paper market is 100 million tons per year. • The minimum scale for a new plant is 1 million tons of productive capacity.A California electric utility is contemplating entry into the electric car market. how? Possible scenario: • Utilities are in a heavily regulated market with very stable demand. • The standards for electric cars being developed by the Big Three are not dependent on any particular energy supply. A paper producer is contemplating adding capacity. • The company currently sells 9 million tons of paper per year. • A new plant comes on-line. two years after the decision to build it is made. Page 32 Case Interview Study Guide . any utility will be able to supply electricity needed to recharge car batteries. 5 million of this has been committed to already. • Market demand for the electric cars is expected to fall far short of the mandated 10%. • Competitors are contemplating adding 10 million tons of capacity in two years. This market is expected to be deregulated by the year 2000.
Case Interview Study Guide Page 33 . • Fixed costs are a high percentage of total costs. who can then do the diagnosis and return the results to the referring physician. • Aluminum is sold on world markets at world prices stated in dollars. The hospital industry is experiencing a large over-capacity of beds. • Physicians are widely dispersed throughout the country. What should you do? Possible scenario: • Demand for aluminum is growing slowly and prices have been stable. your profit margins are declining every year. • The supply of bauxite. Although your unit costs are competitive with the market. How should the doctors promote their technology? Think about payments and devise an operational plan? Possible scenario: • 90% of payments are made by insurance companies which tend to pay slowly. has been declining which has driven up world prices. In order to perform the new test. the ore for aluminum. The doctors want to maintain proprietary ownership of this technology. What would you recommend? (Overthrowing the government is not an option.You are the Number 2 aluminum manufacturer in the country. • The dollar’s value has been declining relative to other currencies. A group of doctors has just discovered a new medical diagnostic technology for diagnosing cancer. • Demand is elastic in the short-run as users will take advantage of low prices to make forward purchases. • 70% of your output is currently sold in the US. blood samples have to be given to the enterprising doctors. but is inelastic over the medium to long run. • The industry is very capital intensive and currently operates at 75% capacity. yet offer it to physicians across the country. Your client is a hospital bed manufacturer and is experiencing declining demand as the result of the government’s new health care policy.) Possible scenario: • The company’s steel bending technology is highly fungible and can be used to manufacture many types of steel products. • The transport of blood samples is heavily regulated and needs to be done by special couriers.
• The division of calls among these types is: 50% sales. 45 seconds. and customer support for operating instructions. inquiries on shipping dates for ordered products. and 20% instructions. • Environmental pressures have led to liability suits against waste management companies. Total book costs are roughly equal. and 90 seconds. • The reserves set aside by waste management companies for future landfill clean-ups are 10% of disposal costs. 20% shipping. 300 seconds.A customer has a problem with lots of incoming customer calls. but don’t mind incinerators due to the employment opportunities offered. • The average length of each call is: 60 seconds. customer support for product failures. Page 34 Case Interview Study Guide . • Both land fills and incinerators are heavily regulated. which has high up-front costs to build but has a longer useful life than a land fill. How should they handle this? Possible scenario: • Calls can be segmented into four main types: sales inquiries and requests for catalogs. • Trucking costs are 30% of the cost of waste disposal. Actual future costs are unknown. • Most waste is generated by households. • It takes five years to fill up a landfill. What do you think? Possible scenario: • An alternative waste disposal option is an incinerator. A waste management company is considering whether it should invest in new land fills. 10% failures. • Communities do not want land fills near their homes.
depreciation expenses for the hardware.000 and will last for 5 years.000 per year. assume insurance is $800 per year. To estimate the revenues.200 potential customers. Assume there are 500 workers in each building. Finally.00 per hour. or 30. If there are 50 working weeks in a year. The final step is to estimate an appropriate discount rate and to discount the cash flows.500 = $37.500 per year. Assume the hardware of the hot dog stand costs $10.000 to be precise). then.500+$11. The estimation of volume is identical to the method used in estimation cases described above.000 hot dogs per year.50 and each customer also purchases a soft drink at a price of $1. Assume that on average each of these potential customers eats a hot dog once every two weeks. That means that the total cost of goods sold is $0. Wages. In this case.30 wholesale.500 potential customers in total. Add 10% employment taxes to that for a total of $11. It serves the workers in your building and two neighboring office towers. you need to multiply volume by price. Now we need to estimate the costs.000 ($288. Therefore.000 $37. In this case.200+$2. and insurance. Total costs will include cost of goods sold: hot dogs.200 per year. buns.00. or 2. Assume electricity is $100 per month for a total of $1.75 = $22. In total. say that is 6%. the hot dog stand will sell 30. are $10. Total revenues for the cart will be 30. Cans of soft drink will cost $0. Assume wages of $5. Take a risk free rate of 7% (long government bonds) and add a business risk premium. electricity for the heater and refrigerator. How much is it worth? Valuing a company is done by calculating the net present value of the cash flows at an appropriate discount rate. Assume that there will be no growth in the company. Divide the annual cash flows by this discount rate and you get the value of the perpetuity. and it will continue operations indefinitely. straws and napkins.10. Case Interview Study Guide Page 35 . That is $2. If we assume that annual capital expenditures are equal to depreciation.00 + $1. each customer eats 25 hot dogs per year. condiments. one year will have 50 weeks of 40 hours. that is 1.000 x ($1. If the stand is open eight hours a day. and napkins and straws. this figure is equal to the annual cash flow. that would be approximately $300.000+$800 = $37. The cash flow depends on revenues and cash costs. That means you can use a perpetuity to estimate the value.000. Additional costs are wages for the operator of the stand.000 total hours.500. there are 1.10 for condiments. soft drinks.000+$1. That means that the appropriate discount rate is 13% per year. This is the maximum price you should be willing to pay.000 x $0. Now assume that one hot dog costs $1.Mini Cases You have a hot dog stand in front of your office. Add $0. That means that profits are $75. you will first need to estimate the cash flows. Total cost is $22.000 depreciation per year. Assume hot dogs cost $0.000 per year.50) = $75. If 80% of these workers likes hot dogs.25 a piece and buns cost $0.75 per order.500. You want to buy it.
Possible options are: setting the default wait state to the middle floor in the morning (when most people will be leaving their homes to go to work) and to the first floor in the evening (when most people return from work). etc. If adding elevators in unfeasible due to space limitations. How would you solve the building’s problem? To solve this problem. Other options are to place television sets in the lobbies (the Wharton Reprographics CNN approach). A few of the elevators could also be turned into express elevators which serve only the bottom half or the top half of the building. One elevators could be programmed to stop on only every third floor. Examples of the second type of remedy are to place mirrors in the lobbies so that people can look at themselves while waiting which may make the waiting time seem shorter. First explore opportunities for the first approach. Another option would be to always have one elevator waiting on the first floor while another is waiting in the middle. Elevators could be programmed to “learn” what patterns prevail at what time of the day. Page 36 Case Interview Study Guide . so that tenants could walk up or down the last floor. play music. install lights that show where the elevators are at. The best solution is likely to be a combination of both types of approaches. and could optimize their wait states based on that knowledge. or you can change the perception by making the wait less aggravating.You are a manager of a residential high rise building? Tenants have complained about the slowness of the elevators. you can try to decrease the waiting time by changing the moving speed of the elevators or by changing the algorithm used to move them. put coaches and magazines in the elevator lobbies. you can take two approaches: you can change the reality by speeding up the existing elevators or adding more elevators.
A cube composed of 8 x 8 x 8 small cubes is put in a bucket full of paint. How will you make sure the opera house survives? 2. What would happen if the price of oil went to $zero? Case Interview Study Guide Page 37 . which removes all restrictions on inter-state and intra-state branching for banks? 5. How would you forecast the appropriate number of branches for a local bank after deregulation. The subsidies of the Springfield Opera House have been discontinued by the City of Springfield. What do you tell him? 3.Additional Mini Cases 1. would you enter the market? How? 7. Your client has developed a new material for bathing suits and wishes to launch it. How many cubes are painted? 4. Estimate the annual demand for golf clubs in the US? If you were a metal fabricator with excess capacity. How do you determine the optimal allocation of your next advertising dollar? 6. It is priced presently about twice as high as a regular suit.
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