Math in Case

COMPREHENSIVE
MATH DRILLS
Math in Case
© 2021 MConsultingPrep, Inc.

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Consulting Math Drills Math in Case
Overview and Instruction

This practice package is the final component of our Consulting Math Drills. It has been developed recently based on
reviews we gathered from candidates enrolling in the course. Although other packages already cover all types of math
calculations in different context lengths, we understand that there is the need to develop a material that provide
practices associated with even more complicated and business-related concepts. When numbers are put into case
perspectives, you are expected to not only solve the “word problem” but also have to connect the final result to overall
background and derive implications. This extra step is essential in any case interview.
The primary goal of this package is to get you a profound understanding of math questions in an interview: their role,
position, difficulty level and structure of a decent answer. As all practices derived from cases used in actual interviews,
all elements including case context, CEO concerns, available options, business decisions, etc. are worth taking notes.
Certainly, they can help improve your business intuition. In general, however, our cases appear to be rather short, as
we remove qualitative questions. This removal aims to prevent you from slipping into qualitative side and keep you
stay on the math track.
Each question in this package goes with a detailed answer, including a recommended approach, formulas, explanations
and ‘next-step’ insights. These factors hopefully make up a good response that you should deliver in your actual
interview. In fact, a good response should vary depending on the insights you have gathered in the discussion before
the math part.
As the purpose of this package is to train you on math skills, we only pick cases that are heavy on the quantitative side.
The probability you’ll encounter a heavily quantitative case is about 50%, depending on the position you apply and
your interviewer’s preferences.
The appropriate method of using this package is as follows:
• Read the case context and questions carefully. Identity the information needed to solve the questions.
• Only allow yourself 1 minute to layout the approach. After figuring out the answer, check out the answer
keys. Present your answer out loud within 5 minutes and repeat until your pitch sounds perfect.
• Finally, go over the context again and note down the information that would be helpful to improve your
business intuition.
Please let us know if you have any problem with the question or the answer key. Good luck with your studies!
1 © 2021 MConsultingPrep, Inc.
For more in-depth materials on management consulting preparation, visit www.MConsultingPrep.com

MATH IN CASE
1. Open Wings Airline
Open Wings Airline (OWA), founded in 2005, is a low-cost airline headquartered in Germany with two
hubs located in Munich and Cologne. The company has been profitable since its establishment but has
experienced a flat profit growth for the past few years. Concerning about this problem, the CEO of OWA is
considering African safari as a potential market to enter within the next year. A safari is an overland journey,
usually a trip by tourists to either hunt or observe and photograph wildlife. According to the CEO, the
primary goal of this entry is to increase OWA’s annual profit.
There are 3 options to enter this new market for OWA: No.1 is to build this business from scratch, No.2 is
to acquire a local experienced company and lastly No.3 is outsourcing. By outsourcing, OWA will contract
with a local company to provide safari tours but brand to make them appear as OWA provides them. This
partner will be considered as a white-label company.
Prefer to have the new business entirely under control, the CEO thus prioritize the first option. The
following shows the tour information and projected costs to OWA if it decides to start from nothing.
Projected Costs to OWA
Number of people in a tour: 5 A tour needs 1 tour guide A tour lasts a week
Initial Investments: • ATV: $12,500 with a 10- • Accommodation and meals:
• 4 ATV* year life span 40% of revenue
• 2 Tour guides • Tour guide’s salary: • Other costs: $4000/week
(only occurs when having
• 4 Drivers $2,000/month
tour)
• Driver’s salary:
$250/month
*ATV: All-terrain vehicle

1.1. Given the tour price is $10,000 in total, how many tours OWA must operate at least in order for
this business line to be profitable within the first year?
The CEO believes that OWA can only operate 30 tours annually at maximum in the first few years of
operation with the annual target profit margin of 6%. Out of the two remaining options, he is more
interested in the last one, outsourcing. The partner is then quickly determined with the following offer for
OWA:
OWA will pay the partner a fixed amount of money each year, or a lump sum, to have them operate tours
for OWA, plus $8,000 per tour for the first 20 tours and $7,000 for all tours thereafter.
1.2. How much is the maximum lump sum that OWA agree to pay so that it can achieve the profit
margin target?

Answer:
1.1.
To answer this question, let’s me compute the breakeven point for OWA, where the total revenue equals the
total costs. The minimum number that is greater than the breakeven point will be the minimum number of
tours required for OWA to be profitable.
Now let’s first set up the equation, starting from the basis equation of breakeven:
Annual Rev = Annual Cost
We have:
Annual Rev = Price/tour * No. of tours = 10k * X
Annual Cost = Fixed+Var
= (ATV + Tour guide + Driver) + (Accommodation + Others)

!",$%%
=( !%
* 4 + 2,000 * 12 * 2 + 250 * 4 * 12) + (40% * Rev + 4,000 * X)
= (5,000 + 48,000 + 12,000) + (40% * 10k * X + 4,000 * X)
= 65k + 8k * X
Plug numbers into the initial equation, we have:
10k * X = 65k + 8k * X
2k * X = 65k
X = 65 / 2 = 32.5
The minimum number of tours required in a year is 33
33 tours a years or 2 to 3 tours a month. If we can deliver 4 tours a month in 12 months throughout the year,
we can yield a reasonable profit. On the other hand, if we cannot deliver up to 33 tours a year, we shouldn’t
go further in this option as it doesn’t help with the client’s goal. So as the next step, I’d like to figure out if
OWA can deliver more than 33 tours a year or not. To do so, I’d like to benchmark this number with
comparable competitors in the market to have a rough sense, then moving to examine the qualitative aspects
if our benchmark looks favorable (including market demand and company capabilities).
1.2.
The lump sum is a part of our total cost so to figure out the lump sum, we need to calculate the total cost.
We have:

Cost = Rev – Profit
= Rev * (1 – Profit margin)
= (Price * No. of tour) * (1 – 6%)
= (10k * 30) * 94%
= 300k * 94%
= 3k * 94
= 282k
Looking at cost from the segmentation point of view, we have:
Cost = Lump sum + Variable costs
= Lump sum + 8k * 20 + 7k * (30 – 20)
= Lump sum + 160k + 70k
= Lump sum + 230k
Thus, Lump sum = Cost – 230k = 282k – 230k = 52k
With this option, the client can have a profit of $18,000 a year (10k * 30 * 6% = 18k). For the sake of
profitability, the option 3 so far seems like a better way to go: more profitable because the breakeven point is
lower. As the next step, I’d like to dig deeper into this option to understand more about its qualitative side.
In particular, I want to investigate the risks involved if we do outsourcing.

2. Botswana’s Power
Akin to other regions in Africa, Botswana is starved for electricity. The country with electrification rate of
less than 80% of the population is suffering from reduced GDP per capita. This makes its government
become more sophisticated and opening up to investment in power sector. Facing both opportunities and
challenges, Botswana government asks Mckinsey for help on drawing an action plan for sustainable power
supply in the future.
In the plan, McKinsey team decides to explore (1) how power demand will evolve in the country, along with
(2) the associated supply requirements; (3) how much it will cost to supply the needed power, plus (4) the
options available to manage the expense; and (5) what is required to ensure that the new capacity gets built.
(Note: This data doesn’t belong to the case prompt and should be the outcome of the discussion during the
first structuring question. We provide it here to help you understand why the following math problems are
relevant).
After the structure question, you are asked to examine Botswana’s power demand evolution. Below is the
assumptions you are given regarding this subject:
• The country’s 80% of power demand comes from two sectors: residential, and commercial and
industrial
• The total power demand last year was 600 megawatts.
• Residential power demand is one quarter that of the other
• The power demand growth rate is expected to be 5% per year across both sectors
2.1. How much will the power demand of Botswana be in 2025 (after a 15-year period)?
The next step is to investigate the supply potential of Botswana. After examining a couple of fuel options,
you find out that the country is currently capable of building only coal-resource capacity. In fact, it has
significant quantities of coal and this resource will continue to be the primary energy source for the next 15
years, accounting for approximately 100% of the total electricity capacity. Below is the data your team have
received and synthesized from the government:

Description*
• Total reserves 21 billion tons Botswana’s reserves of coal

• Percentage of reserves 80% % of reserves that will be used for power
that are thermal production
• Committed coal 5 billion tons Amount of usable coal that are committed to
exports
• Coal station life span 50 years The duration a coal station will require supply
• Conversion Rate 3000 MW/billion Used to convert total annual coal production
ton capacity to total potential power capacity from
coal, taken into account the power plants’ load
factor, efficient factor and Botswana’s caloric
value of coal
*Note: Descriptions are stated verbally in live case
2.2. What is the annual power supply capacity of Botswana, assuming that all coal is economical to
mine?
Note: In live case, you should ask the interviewer for clarification on terminologies or concepts that you
don’t understand clearly.

Answer:
2.1.
Demand in 2025 = Demand from two main sectors in 2025: 80%
= 600 * 80% * (1+5%)^15 : 80%
= 600 * (1+5%)^15
~ 600 * 2 (According to Rule 72, (1+5%)^(72/5) ~ (1+ 5%)^14 ~ 2)
= 1200 MW
From the information we have, Botswana has increasing demand for electricity. As our estimate is based on
the annual growth rate, I want to make sure our estimated data on this figure is as close to actuality as
possible. This leads me to the question of what factors underpin the future growth of power sector.
Examining the key drivers would help me determine the most accurate growth rate and in turn the most
accurate demand. After grasping the future demand, I will move on to investigate the supply potential and
how to build sustainable supply capacity for Botswana.
2.2.
Supply capacity (MW) = Annual coal production capacity (tons/year) * Conversion rate
= Coal production (tons) / 50 (years) * Conversion rate
Amount of coal used for domestic power production:
(21 * 0.8) - 5 = 16.8 - 5 = 11.8 billion tons
Power supply in 2025:
11.8 * 3000 / 50 = 11.8 * 60 ~ 12 * 60 = 760 MW
Well, it’s clear that Botswana won’t meet its power demand if its electricity generation relies on coal only
(760MW supply vs 1200 MW demand – it’s about 40% short). Thus, investment into other energy sources is
a must if the country wants to turn the situation around. However we know investments into new
technologies, new plans may require huge capital and expertise that Botswana is probably in dearth. So my
suggestion for the plan is that Botswana should focus on how to generate electricity from coal at the lowest
expenses as the first step, before seeking alternative resources. For this reason, I’d like to analyze the
investment financial requirements for coal-resource capacity as we move forward.

3. Daikin Company
A North Japan auto manufacturer, Daikin, is facing a series of daunting challenges, including a sharp decline
in revenue, significant cost increases due to new emissions standards, and the potential for a long-term
slump. It, therefore, sought BCG’s help to create a transformation process for the next few years to come.
The CEO emphasized that a growth of 10% in profit after 3 years of transformation would be the target.
How would you come to help?
Note: In the beginning of actual case, you’ll be asked to lay out your general approach to solve the
case. As this is a qualitative question, we are not going to discuss it in details here. Suggested
approach, , however, is shown to help you understand why the following math calculations are
relevant. The approach should comprise 3 steps: (1) figuring out the root-causes of revenue decline
and their solutions, (2) investigate the cost structure to see opportunities for savings and
improvement (e.g. fixed overhead and material cost reduction, and manufacturing efficiency gains).
Finally, (3) evaluating the feasibility of 10% improvement target, if it’s feasible, prioritize your
initiatives so as to achieve the target quickly at the lowest costs.
In step (1), while investigating revenue, you find out that the company has three distribution channels
including dealership networks, wholesalers who purchase fleets of vehicle for businesses and resale to
dealership, and rental companies. Daikin’s sales from Dealership network has dropped by 20% since last year.
After having a discussion on the possible causes for this decline, the interviewer gives you following
information:
• Dealerships employ salespeople to sell automotive vehicles.

• The biggest dealership, accounting for 80% of Daikin’s total sales from this channel, paid less salary
this year than it did last year. The details are thus:
Salesmen Salary, 2015-2016

2015 2016
Number of salesman 15 25
Number of transaction 900 600
Average transaction profit $1,000 $1,000
Fixed payment $90,000 $240,000
Commission payment $225,000 $90,000
3.1 How did the total profit of transactions change from 2015 to 2016?
3.2 How many transactions on average did a salesman generate monthly in 2015 and in 2016?
3.3 What were the commissions (%) per transaction in 2015 and in 2016?

Moving onto step 2 - the cost side, you are asked to brainstorm about the cost structure of a car
manufacturing business, then produce possible ideas to minimize the cost spending. The following data is
given to you during this discussion:
Daikin’s Cost structure, 2016
Cost category Percentage of total revenue

Production overhead 50%
Corporate overhead 17%
Selling (distribution, marketing, dealer support) 7%
Manufacturing 21%
3.4 After 3 years, if the total cost increases by 30%, in order to meet the initial profit target, by what
percentage will Daikin’s revenue have to increase?

Answer:
3.1
The total profit is product of the number of transaction and the average profit per transaction. We
have the profit per transaction stayed the same between 2015 and 2016 so the change in total profit
was mainly driven by the remaining factor. In the same period, the number of deals dropped from
900 to 600, which is a decrease of 33% ((900-600)/900 = 33%) so the profit decreased by 33%. This
seems very counter-intuitive as the firm hired more sales men.
3.2
Monthly transactions per salesman = # transactions / #salesmen / 12
In 2015: 900 / 15 / 12 = 5
In 2016: 600 / 25 / 12 = 2
Although the dealership hired 66% more salesmen in 2016, their total profit generated from car
transactions went down 33%. This is obviously due to the drop of 60% in the number of monthly
transactions per salesman. If this productivity problem isn’t fixed, the dealership has to keep
recruiting more people, hopefully quantity can compensate for productivity. But the problem is that
this action potentially entails a significant cost of salary. So my suggestion is that the dealer have to
fix their employee low performance first, by, for example, offering more bonus based on
performance. However, to know exactly what solutions they should implement, the root-causes led
to the low performance must be identified. So exploring the factors that influence the performance
level of a car salesman is needful, I believe, factors such as salary and commission. Have there been
any changes regarding those financial factors?
3.3
Commission (%) = Commission payment / # transactions / # profit per transaction
In 2015: $225,000/ 900/ 1000 = 25%
In 2016: $90,000/600/1000 = 15%
Well, the commission for a successful transaction decreased significantly. I wonder if this’s an action
to reduce the salary cost in response to the salesmen extension. Clearly this has driven away the
incentives to make transactions of salesman.

3.4
Cost2016 = (50+7+17+21) % = 95% Revenue2016
Profit2016 = 5% Revenue2016
Revenue2019 = Cost2019 + Profit2019
= Cost2016*1.3 + Profit2016*1.1
= Revenue2016*0.95*1.3 + Revenue2016*0.05*1.1
= Revenue2016*0.95*0.3 + Revenue2016*0.95 + Revenue2016*0.05*1.1
~ Revenue2016* (1 + 0.95*0.3)
~ Revenue2016*1.29
So to meet the firm’s target, if the cost rises by 30%, revenue has to increase by relatively the same
rate. That 30% gain is required within 3 years so it is roughly 10% a year. My next question would be
whether an increase of 10% per year in revenue is feasible or not. So some information about the
market demand, growth rate and our projected market share would be helpful for me to answer that
question.

4. Pharma Company
Pharma Company, located in the United States, is an international manufacturer of pharmaceutical

drugs. In recent years, it has developed a new drug – Komai, an Alzheimer initial prevention. This drug
has strong preventative effect on “high risk” Alzheimer individuals and should be used before symptoms
emerge. It is a single tablet taken on daily basis and packaged for ten tablets.70% of patients who are
considered high risk taking Komai will not develop Alzheimer. Last year, Komai received regulatory
approval by the Food and Drug Administration (FDA) for commercial manufacture and sale. Pharma
Co. intends to sell the drug for $70 per package and is looking for a market (country) to launch this
product with the objective of generating the highest revenue in a 3-year period.
A country where insurers cover the drug will be preferable in order for Komai to gain traction in that
market. After investigating the market demand, there are 3 markets Pharma considers penetrating:
Brazil, Japan and Germany. The following table shows the market overview of the three markets
Market Overview in Brazil, Japan and Germany
Brazil Japan Germany

Population 200 million 150 million 80 million
% People suffer Alzheimer 0.5% 1% 0.5%
% People is considered at risk 2% 4% 1%
% People at high risk (would 20% (people at risk) 15% (people at risk) 25% (people at risk)
develop Alzheimer)
Annual Alzheimer treatment $15,000 $20,000 $10,000
cost per case
Investment cost (*) $500M $700M $200M
(*) Investment cost is the initial cost to Pharma investing into infrastructures in the target market to
manufacture, transport and distribute Komai.
4.1. Which country has the biggest market size in dollar value? Is that country likely to cover the drug at
70$ per package?
The variable cost is 20$ per package of 10 pills and fixed cost is zero. Assuming that Komai
accounts for 100% market share, what is the payback period of Komai in each market?

Answer:
4.1
I will take Brazil for example. The calculations for the other two countries will be similar.
Market size in dollar value = # consumers * spending per consumer
Brazil
No. of Komai users = 200 million people * 2% considered at risk * 20% considered high risk
= 800,000
Spending per Komai user = $70 per package/10 pills per package * 365 days = $2,555
Market size = 800,000 * $2,555 ~ $2B
The insurers will be interested in a new drug if it helps them reduce their costs. I’m going to calculate the
cost reduction to the insurers by comparing what they have to pay additionally and what they can save if
they cover Komai. If the saving is positive, insurers will be likely to cover the drug.
Saving to insurers = 800,000 case * 0.7 successful rate * $15,000 = $12B * 0.7 = $8.4 B
Cost reduction to insurers = $8.4B – $2B = $6.4
Applying similar calculations for Japan and Germany, we have the table below:

Potential revenue ~$2B ~$2.3B ~$0.5B
% Cost reduction for
$6.4B $10.5B $0.9B
insurers
Japan has the biggest market size and Japanese insurers will also be most likely to cover Komai as its
saving in absolute value is highest amongst the three countries. But in order to be more certain ,
calculating % cost saving of Komai for insurers is necessary. This would give me a comparison of the
impact from Komai on each country.
Current costs to Brazil insurers
= No. of Alzheimer patients * cost per case
= (200 million people * 0.5% people suffer Alzheimer) * $15.000
= 1 million cases* $15.000
= $15B

% Cost saving of Komai for Brazil’ insurers: 1 – (8.6/15) = 42%

% Cost saving for insurers 42% 35% 22.5%
In terms of relative value, Brazil turns out to be the country where insurers are most likely to cover
Komai. But as the client objective is to maximize revenue and there is still high chance that Japanese will
cover our drug, I think Japan would be the first priority.
4.2
Japan
Annual profit = 900.000 high risk individuals *$(70-20)/ 10 pills per package * 365 days = $1.64B
Payback period = (700M/1.64B) * 12 months = ~5 months
Brazil
Annual profit = 800.000 high risk individuals *$(70-20)/ 10 pills per package * 365 days = $1.46B
Payback period = (500M/1.46B) * 12 months = ~ 4 months
Germany
Annual profit = 200.000 high risk individuals *$(70-20)/ 10 pills per package * 365 days = $365M
Payback period = (200M/365M) * 12 months = ~6.5 months
So with the 100% market share assumption, Japan can bring the greatest revenue to Pharma. We also
figured out that the payback period is less than a half year in this market that is favorable. As the
quantitative side is all good so far, I think it’s time to switch to examine some qualitative aspects of this
market to make sure Pharma can enter this market successfully and sustainably.

5. Bike Buddy
Bike Buddy is one of the largest bike widget manufacturers in Argentina, currently accounting for over
50% domestic market share in terms of dollar sales. Their products are available not only in Argentina
but also in some other South American countries such as Brazil, Chile and Peru. Over the past three
years, domestic sales of Bike Buddy has been flat while the international market has seen a positive
growth. The CEO believes that the domestic demand is not potential to grow in the next years due to
market saturation and intensive competition. Thus, he decides to consult McKinsey team for ideas to
grow Bike Buddy’s market share (currently 10%) and its profit in the foreign markets.
Bike Buddy’s manufacturing plants are operating with 100% capacity and each plant can specialize in
and produce only one product. There are 3 product types that Bike Buddy is producing: wheels,
handlebars and saddles. The two tables below show the last year performance of the 3 categories overall
and in each market segment.
Sales, Price and Profit margin of Bike Buddy’s Products
Product Units Average Price ($) Profit Margin (%)

(thousand)
Wheels (W) 50 14.0 40%
Handlebars (H) 30 12.5 50%
Saddles (S) 20 7.0 30%
Product National Market International Market

Units (thousand) Price ($) Units (thousand) Price ($)
Wheels (W) 25 16.0 25 12.0
Handlebars (H) 20 11.5 10 15.0
Saddles (S) 15 7.0 5 7.0
5.1. Which product has the highest profit margin?
Bike Buddy is considering to move manufacturing plants to Asian countries in order to take advantage
of the low manufacturing costs. There are 3 potential options in their plan: Indonesia, China and India.
The CEO is concerned about which one of the three would be the best. The Mckinsey team conducted
a cost structure table for 3 countries relative to the costs in Argentina as follows:

Cost Structure Relation
Cost Cost in Cost in Indonesia Cost in China Cost in India

Argentina relative to Argentina relative to relative to
($/unit) (%) Argentina (%) Argentina (%)
W H S W H S W H S W H S
Labor 2.5 1.9 1.5 80 60 110 80 70 60 70 70 70
Material 4.2 3.2 2.5 75 110 60 120 90 80 30 30 30
Variable overhead 0.1 0.1 0.1 140 75 50 30 50 40 50 40 60
Fixed overhead 0.1 0.2 0.2 60 50 70 20 40 20 80 70 90
Transportation 1.2 1.2 0.6 230 250 250 210 230 250 270 280 280
5.2. Which country is the best option in terms of cost saving?

Answer:
5.1
In order to figure out which product is more profitable nationally and internationally, we have to
calculate the unit cost first, based on the first table:
We have Unit Cost = Average Price * (1 – Profit Margin)
Units (thousand) Average Price ($) Profit Margin (%) Unit Cost
Wheels (W) 50 14.0 40% 8.4
Handlebars (H) 30 12.5 50% 6.5
Saddles (S) 20 7.0 30% 4.9
Next, we calculate the profit margin in the two segments based on unit cost:
We have Profit Margin = 1 - (Unit Cost/Unit Price)
Profit Margin in Profit Margin in International

National Market (%) Market (%)
Wheels (W) 47.5 30.0

Handlebars 43.0 56.6
(H)
Saddles (S) 30.0 30.0
So wheel is the most profitable nationally while handlebar is the most internationally profitable. The
saddle has the same profitability in both segments. Because all of the three categories have good profit
margins, the more we can sell in foreign markets, the more profit and market share we can earn. As we
currently capture only 10% of the foreign markets, oo the question here is how we can increase our
competitiveness to take advantage of the huge demand. Focus on one or two main products would help
us be more competitive. As handlebars has significantly higher profit margin than that of the other two,
I’d like to focus on this one first. I would like to examine whether there is unaddressed demand for this
specific product in existing markets and other new markets as well. Also, whether we have capabilities to
differentiate ourselves from existing competitors and whether we can increase our capacity.

5.2
The best approach is to focus on 2 major Costs: Labor and Material. We will choose the country which
has the most saving. Looking at the relative figures, India is the best choice for relocating manufacturing
plans with highest saving on costs.
We can calculate the cost saving in absolute number as follows:
Cost in country = Cost in Argentina * (Cost in country relative to Argentina)
Cost Cost in Argentina Cost in Indonesia Cost in China Cost in India

($/unit) ($/unit) ($/unit) ($/unit)
W H S W H S W H S W H S
Labor 2.5 1.9 1.5 2.0 1.1 1.7 2.0 1.3 1.0 1.8 1.3 1.0
Material 4.2 3.2 2.5 3.2 3.5 1.5 5.0 2.9 2.0 1.3 1.0 0.8
Total 6.7 5.1 4.0 5.2 4.6 3.2 7.0 4.2 3.0 3.1 2.3 1.8

6. Air Aerial Pacific (AAP)
Air Aerial Pacific (AAP) is a global airline company which operates both domestic and international
flights in China. In order to increase profit, AAP considers introducing wireless Internet service in their
international flights (i.e. flights between Chinese cities and non-Chinese cities). Currently, there are
some national airline companies providing the wi-fi service for their domestic flights but not for
international flights due to the lack of wireless towers over water – an essential equipment needed to
deploy wireless connection. The AAP’s CEO is looking for a contractor in China to build this needed
high-tech infrastructure.
Note: The important factors used to determine a suitable provider should be discussed during the first
question.
The initial investment on towers and on-plane equipment is $200 million. Also, it costs additional $5 per
used hour per user to maintain devices on airplane. On average, the utilization rate of one AAP flight is
approximately 95% (about 400 passengers) and an international flight lasts about 8 hours. AAP owns
400 planes flying internationally; each of them takes on 2 international flights per day.
There is a survey about the willingness of passengers to pay for the wireless Internet service:
• 20% of passenger are willing to pay if price is ≤ $10/h

• 5% of passenger are willing to pay if price is ≤ $20/h
6.1. Which price point should be chosen to deploy the service, assuming that passengers will spend
half of the time on flight using wireless internet devices?
6.2. How long is the payback period on this investment?

Answer:
6.1.
Let me draw a table that summarizes all the information we have
Price $10/hour 20$/hour

Cost $5/hour
% user 20% 5%
No. of passengers 400/flight
Initial investment $500,000/airplane
As the client’s objective is to increase their profit, the price point that bring us higher profit should be
chosen.
Profit/day = profit/flight * 2 flights/day
= (% users * No. of passenger * profit/ passenger) * 2 flights/day
Profit/hour (exclude initial $10/hr - $5/hr = $5/hr $20/hr - $5/hr = $15/hr

investment)
Profit/ passenger ($5/hr)*(4 hr/pass) = 20$/pass ($15/hr)*(4 hr/pass) = 60$/pass
Profit/flight ($20/pass)*20%*(400 pass) = ($60/pass)*5%*(400 pass) =
$1,600/flight $1,200/flight
Profit/day ($1,600/flight)*(2 flights/day) = ($1,200/flight)*(2 flights/day) =
3,200$/day 2,400$/day
In terms of profitability, $10/hour is the better price point than $20 but I’m not sure $10/hour is the
best price. It seems that we should add some more price points to our survey in order to evaluate the
customer’s price elasticity in more details. A price point in between like $15/ hour or a bit below $10
should be added. There is probably no need for a more premium price above $20/hour as the % of users
is already low at 5%.
6.2
AAP will break even when the profit equals the initial investment:
10$/hour: Days required = (500.000$/airplane)/(3200$/day/airplane) ~ 156 days
It takes about 5 months for our client to start earning profit. It doesn’t sound bad. Do we know the
CEO’s requirement on the payback period?

7. Boba Ice cream
Boba Ice Cream is a multinational company that accounts for 30% of all ice cream sales worldwide.
Traditionally, its largest markets for ice cream have been developed countries, however, the fast pace of
growth in emerging economies such as India has been the force behind Boba growing ice cream sales in
recent years. Thus, Boba is looking for ways to boost its sale in India. Currently, the major sales channels
of Boba ice cream in India are the following:
Modern trade: Comprises of larger retail chains which offer standardized store layouts. It makes up
approximately 10% of all Boba commercial transactions in India. Boba has penetrated 70% of this
channel. This means 70% of ice cream sales through modern trade in Indian market is generated by
Boba.
General trade: Covers the vast array of independent “mom and pop” stores across the country and makes
up 50% in total transaction. The penetration rate of Boba in this channel is 50%.
Rural market: These are scattered over vast areas with low per capital consumption rates for packaged
products and makes up 40% sales. Boba has a penetration rate of 30% in rural market.
Given that the total revenue of Boba Ice cream was 0.25$ billion last year in this country, the CEO
would like to know:
7.1. The total consumption for ice cream in India and the biggest channel in terms of
consumption?
Boba intends to insert a new sales channel - vending machines - to distribute their products. It is
estimated that nearly 1 in 16 people in India will buy ice cream through vending machines; each makes
no more than 2 purchases a month. The revenue per transaction is approximately 2$/month. There are
1.1 billion people in India. Each machine costs $3,000 and the maintenance cost is $10 after every 20
purchases; other costs are negligible.
7.2. How many vending machines should be installed with a payback period of less than 6 months?

Answer:
7.1
The total consumption size is the sum of consumption from each channel.
Modern trade + General trade + rural market
The consumption from each channel can be determined based on our revenue (the absolute value)
and the share (relative value) we have in each channel.
Boba’s revenue from different channels:

• Modern trade: 10% * $250 million = $25 million
• General trade: 50% * $250 million = $125 million
• Rural market: 40% * $250 million = $100 million
The consumption of each channel = Boba’s revenue / penetration rate
• Modern trade: $25 million/ 70% ~ $36 million

• General trade: Rev = $125 million/ 50% = $250 million
• Rural market: Rev = $100 million/ 30% ~ $333 million
Total = $36 million + $250 million + $333 million = $619 million
As we can see, rural market is the biggest channel in terms of revenue. However, our penetration rate
is pretty low at 30% so it seems that we have large potential to grow our sales in this channel. I would
like to understand what challenges in this specific channel we’re facing that check the growth of our
sales.
7.2
# of machine = # of users / # of users per vending machine
My approach here is to determine the break-even point for 1 machine within 6 months, or the
number of customers a machine needs to generate within 6 months. Call the number of purchases
per one machine in a month X, we have:
Fixed cost = 6 months * (Revenue – Variable cost)
$3.000 = 6 months * (X * $2 – X / 20 * $10) = 6 month * $3/2 * X = $9 * X

X = 3,000 / 9 ~ 334 purchases
So if there are at least 334 purchases per 1 vending machine, Boba can break-even within 6 months.
Next, we calculate the maximum number of vending machine

# People using vending machine = 1.10 billion / 16 = 70 million

Number of vending machine = 70 million / 2 / 334 ~ 105 thousand vending machines
It requires an initial investment of over $300 million for 105 thousand vending machines.
Apparently we should not spend such a huge investment at once so only a fraction of the market in
this channel should be target. I also concern with the number of customers we can be able to attract
to one machine. In order to know whether 333 people is feasible or not, I would need some
benchmarks. I guess we can get benchmarks through reports or customer surveys carried out by
ourselves.

8. Pandora Zoo
Pandora Zoo is the UK’s most visited zoological garden and home to a wide range of species. It attracts
on average 300 thousand visitors per year of which 75% is children. The zoo is considering to acquire a
rare black lion. Should the zoo do it or not?
The following is some information that the Pandora’s CEO gives to us:
• The acquisition cost of the lion is $300 thousand. Besides, the zoo has to pay $1.8 million for an
enclosure. There is a maintenance cost of $50 thousand annually in order to take care of the lion and
the enclosure.
• The ticket price for adult is $15 and that for children is $10
The CEO says that the investment must be profitable after 4 years.
8.1. By what percentage does the number of visitor have to increase to justify Pandora’s acquisition of
lion, given that the maximum percentage of visitors that the lion can help increase is by 20%.
The zoo also consider buying one more lion at the same price as the first one‘s and other costs occurs the
same. The second lion will drive an additional 5% increase in number of tickets sold. There is 90%
possibility that the two lions will procreate 2 cubs every 2 years in 6 years and the zoo can sell each cub
for $100 thousand.
8.2. Should the zoo buy 2 lions?

Answer:
8.1.
To justify the lion acquisition, additional revenue Pandora earns has to be at least equal to the initial
investment it has to pay
Additional revenue = Additional costs
Revenue * Growth = Acquisition cost + Enclosure cost + Maintenance cost
(Adult + Children) * Growth = Acquisition cost + Enclosure cost + Maintenance cost
Call the increase in the number of visitors X (%).
No. of children visitors = 300* 75% = 225k
No. of adult visitors = 300k – 225k = 75k
Additional Ticket revenue per year: = (75k * X * 15$) + (225k * X * 10$) = $3,375 * X
Total cost in 4 years = $300k + $1,800k + 4 * $50k = $2300k
Then we have: $2,300k = 4 * $3,375k * X
X ~ 2300/13000 = 23/130 ~ 17%

The lion should increase number of tickets sold by 17% and it is possible. From the profit perspective,
the investment is worthwhile.
8.2.
We need to find out whether acquiring 2 lions can help Pandora Zoo earn more profit after 4 years or
not.
Cost of 4-year investment = $2,300k * 2 = $4,600k
Ticket revenue per years of the 1st lion = (75k * 0.20 * 15$) + (225k * 0.20 * 10$) = $675k
Ticket revenue per years of the 2nd lion = (75k * 0.05 * 15$) + (225k * 0.05 * 10$) ~ $165k
Revenue of selling a cub = $100k * 90% = $90k
Total revenue in 4 years = ($675k + $165k) * 4 + $90.000*2*2 = $3720k < $4600k
Because Pandora Zoo has no profit after 4 years, they should not buy 2 lions at the same time. However,
if we expand the timeframe to 6 years, it seems that the zoo can earn a reasonable profit as the cost will
increase only $100k because of maintenance cost in two years, whereas ir can have 2 more cubs and
another 2-year ticket revenue. If the client accepts a payback period of 6 years, I would be happy to

examine how much profit we can earn within 6 years and then compare it with the profit Pandora earns
as in 1 lion case. Then, I’ll figure out the better option.
9. Suntory Beer Club
Suntory Beer is an alcoholic beverage club known for high quality beers, hot dances and an ecstatic vibe
in Tokyo. It has been operating for the past 5 years. In the first 4 years, Suntory Beer Club was very
financially successful in terms of both revenue and profit growth. However Suntory Beer’s profit has
declined since last year. Thus, the CEO wants to consult you for solutions.
To expand business, Suntory Beer has paid an extra $200,000 per month for renting new premises and a
small allowance of 20$ for dancers per its show. A show is a dance performance by 1 to 2 dancers. On
weekdays, the club provides 4 shows per day; and 6 shows per day on busy weekends. The admission
ticket is $120 on weekdays and an extra 20$ on weekends. On average, there are 60 new customers
watching every show on weekdays and 100 new customers per show on weekends. The following
presents the cost structure of Suntory Beer Club before the expansion.
• Rent/utilities building = $680,000/month

• Liability insurance: $3,600,000/year
• Administration Cost: $800/week
• Dancers’ salaries: $500/show
• Others = $5000/ month
Presumable, a month has 4 weeks (20 weekdays)
9.1. How much profit is Suntory Beer (SB) losing a month?
After investigation, you suggest SB to capitalize on affluent customers through special shows opened
exclusively for them. Affluent customers are those who are willing to pay an extra $60 for weekday
shows and $120 for shows on weekends. SB intends to deliver 2 weekday special shows and 3 weekend
special shows.

9.2. Which time of the day would be suitable to open special shows?
Using the following chart to determine answer.

Answer:
9.1.
In order to make calculations easier, let’s first convert all the data we have into the monthly basis:
Rent/utilities building= $680,000 + 200,000 = 880,000/month

•
Liability insurance: $3,600,000/year = $300,000/month
•
Administration Cost: $800/week= $3,200/month
•
Dancers’ salaries: $500/show = $500* (4*20 + 6*8) = $500 * 128 = $64,000 + $20 * 128 ~ 2,400 ~
•
66,000/month
• Others = $5000/ month
We have Profit = Revenue – Cost, so I’m gonna calculate each component on the right side of the
equation.
(1) Revenue = Rev on weekdays + Rev on weekends
Rev on weekdays = $120 ticket * 60 customers * 4 shows * 20 days
=7200 *80
= $576k
Rev on weekends = $140 * 100 customers * 6 shows * 8
= 14000 * 48 = (14*50 – 14*2) = (700 – 28)
~ $672k
Total = $576k + $672k = $1,248k
(2) Cost = $880k renting + $300k + $3.2k + $66k + $5k

~ $1,254k
Current profit = $1,248 - $1,254 = -$6k
The Suntory Beer Club has losing approximately $6,000 per month. The main driver is apparently the
extra rental.

9.2.
We need Rev >= Cost
(1) Figure cost per show: As the revenue contribution of weekday show is approximately equal to that
of weekend show, we can allocate the cost with the same portion.
Cost per weekday show = $1,254k/ 2 / (20 * 4) ~ $7500
Cost per weekend show = $1,254k/ 2 / (6 * 8) ~ $13,000
In order to be profitable, the minimum number of affluent customers in a show is:
- Weekday shows = $7500/ ($120 + $260$) ~ 20 customers

- Weekend shows = $13k/ ($140 +$420) ~ 25 customers
We can see from the weekday column chart, there are 3 qualified show times, including: 10 pm, 12 am, 2
am. The (10 pm) show and (2 am) show attract the same number of customers; however, as shown in
the corresponding line chart, the 2 am show time has seen an upward trend in number of customers as
opposed to the 10 pm. Thus, (12 am) and (2 am) are suitable.
Regarding weekend shows, from the column chart, there are 4 potential options: 8 pm, 9 pm, 10 pm, 1
am. While the (1 am) show time nearly meets the requirement, the others fulfill the requirement well.
Thus, (8 pm), (9 pm) and (10 pm) are three appropriate times for special shows.

10. Da&Ho Fashion

Da&Ho is a Vietnamese fast fashion (clothing and accessories) manufacturer, designer and retailer
founded in 2015 (2 years ago) by two famous designers Dang Duong and Hoang Le.
Its products include men's and women's clothing, as well as children's clothing. The products are
designed and supplied based on consumer trends. Although the business has been profitable, the
two founders are looking for ways to improve their earnings.
You and your team are called in to help with this objective. After an investigation on revenue and
cost, you found an opportunity to improve the cost side, particularly in the transportation cost.
Below is the information you have gathered:
• After products are designed, they take ten to twenty days to reach the stores. All of the clothing
is processed through 5 distribution centers in Vietnam.
• New items are inspected, sorted, tagged, boxed then loaded into trucks.
• The whole transportation process has been handled by a professional transportation company.
Da&Ho pays for that service based on the number of box shipped which varies seasonally.
• In a year, there are 9 normal months and 3 seasonal months.
Fees for each center and boxes sent
Price per box #boxes shipped per #boxes shipped per

Center
shipped ($) normal month seasonal month
A 8 120 500
B 8 120 500
C 12 120 500
D 12 120 500
E 14 120 500

10.1. How much does Da&Ho pay for transportation in each center?
The two founders are considering to internalize the transportation. They plan to acquire new trucks,
build supporting system and employ new staffs. However, fuel cost is one of their top concerns.
They said that in order to guarantee a cost saving, fuel cost must account for no more than 50% of
the total cost. The fuel cost for each center is given in the following table:
Fuel consumption for truck per distribution center
Fuel consumed by truck ($)

Delivery to centers
per month
A 800
B 850
C 1200
D 1400
E 1500
A truck has a capacity of 600 boxes
10.2 Which center can guarantee a cost saving?

Answer:
10.1
Overall, A and B have the same cost, C and D have the same cost.
Cost = Price/box * #boxes shipped
= Price/box * #boxes shipped/month * #months
A, B: $8 * (120*9 + 500* 3) = $8 * 2580 = $8 * 2500 + $8 * 80 = $20,640
C, D: $12 * 2580 = $10 * 2580 + $2 * 2580 = $25800 + $5000 + $160 = $30,960
E: $14 * 2580 = $25,800 + $10,000 + $320 = $36,120
It seems like all centers are playing equal roles in our supply chain as we ship the same amount of goods
through each center or somehow we just treat them equally. The only factor that makes difference in
cost is the price per box shipped, which probably depends on the distance between our factory and the
distribution center. If we can lower the price, for example by switching to other providers, it probably
will help improve cost for all centers. The other way to reduce our total cost is to lower the number of
boxes shipped to expensive center like E and send them to less expensive center. I would like to examine
if these options are viable or not.
10.2
It’s easier to perform multiplications than divisions. So in each center, I’ll multiply fuel cost by 2. If the
result is higher than the current cost, we should continue outsourcing. Otherwise, we can switch to do-
it-yourself.
A = $800 * 12 * 2 = $19,200 < $20,640
B = $850 * 12 * 2 = $20,400 < $20,640
C = $1200 * 12 * 2 = $28,800 < $30,960
D = $1400 * 12 * 2 = $33,600 > $30,960
E = $1500 * 12 * 2 = $36,000 < $36,120
A, B, C, and E are potential options. Although the cost reduction is possible, it is not significant in
certain centers. I wonder if we can lease trucks instead of investing a huge capital on brand-new ones.
This way is less risky and may help us drive more profit.

We hope this practice package is helpful in your consulting preparation. If you have not done so, please visit
our website for free in-depth theories and practice
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COMPREHENSIVE

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Overview and Instruction

The appropriate method of using this package is as follows:

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Projected Costs to OWA

*ATV: All-terrain vehicle

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Annual Rev = Annual Cost

Annual Rev = Price/tour * No. of tours = 10k * X

Annual Cost = Fixed+Var

= (ATV + Tour guide + Driver) + (Accommodation + Others)

= (5,000 + 48,000 + 12,000) + (40% * 10k * X + 4,000 * X)

Plug numbers into the initial equation, we have:

The minimum number of tours required in a year is 33

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Cost = Rev – Profit

= Rev * (1 – Profit margin)

= (Price * No. of tour) * (1 – 6%)

= (10k * 30) * 94%

Looking at cost from the segmentation point of view, we have:

Cost = Lump sum + Variable costs

= Lump sum + 8k * 20 + 7k * (30 – 20)

= Lump sum + 160k + 70k

= Lump sum + 230k

Thus, Lump sum = Cost – 230k = 282k – 230k = 52k

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• Total reserves 21 billion tons Botswana’s reserves of coal

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Demand in 2025 = Demand from two main sectors in 2025: 80%

= 600 * 80% * (1+5%)^15 : 80%

~ 600 * 2 (According to Rule 72, (1+5%)^(72/5) ~ (1+ 5%)^14 ~ 2)

= Coal production (tons) / 50 (years) * Conversion rate

Amount of coal used for domestic power production:

(21 * 0.8) - 5 = 16.8 - 5 = 11.8 billion tons

Power supply in 2025:

11.8 * 3000 / 50 = 11.8 * 60 ~ 12 * 60 = 760 MW

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• Dealerships employ salespeople to sell automotive vehicles.

Salesmen Salary, 2015-2016

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Daikin’s Cost structure, 2016

Cost category Percentage of total revenue

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Pharma Company, located in the United States, is an international manufacturer of pharmaceutical

Market Overview in Brazil, Japan and Germany

Brazil Japan Germany

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Market size in dollar value = # consumers * spending per consumer

Market size = 800,000 * $2,555 ~ $2B