Annual Growth Rate -- when to account for this in year 1?

Question

Hi! I have a question about Question 3 in this case (screenshot below). I am wondering why in Year 1, the 20% growth rate isn't accounted for? It seems it is assumed that this year-on-year growth doesn't begin until year 2, and I am wondering how you would know this -- when solving the case, I was unsure if I should do as you did, or multiply the value in year 1 by 1.2.

In general, I am unsure when growth rate should be accounted for in year 1 and when it shouldn't. I have seen numerous cases that similarly do not account for the growth percent until year 2, but I have also seen numerous cases account for the growth starting in year 1. Is there any convention here, or should I just ask the interviewer which I should do?

Answer 1

Hi there,

I would be happy to share my thoughts on your question:

I agree that it is unclear whether "year 1" is "year 0" or "now", where no growth has happened yet. In a real case study, I would strongly advise you to clarify such things. Unfortunately, this is not possible with these types of case studies.

You can find more on this topic here: How to succeed in the final interview round.

If you would like a more detailed discussion on how to best prepare your application files, for your upcoming pre-interview assessments and/or interviews, please don't hesitate to contact me directly.

Best,

Hagen

Answer 2

Hi there!

Thanks for the question. I'm happy to clarify, as the author of the case.

Basically, the assumption is that year 1 is the base year.

So we're going to see the increase building from the year after that (year 2).

Best,
Cristian