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How do we get to a break even of ca. 15 years?

Oliver Wyman case: Setting up a Wine Cellar
Neue Antwort am 11. Nov. 2023
4 Antworten
769 Views
Anonym A fragte am 13. Okt. 2021

I understand the following:

Costs: 

Kickstart costs of $13,500 in y0 (or beginning of year 1). Other costs (drinking wine, investing wine, maintenance) of 13,200/yr x 5 years = $66,000. 

Revenue: 

120 investment bottles (from kickstart invest) * $250/bottle = $30K after 5 years.

72 bottles * $250/bottle = $18K after 5 years.

Profit:

$30K + $18K - $13.5K - $66K = - $32K.

Brek Even:

- $32K / $4.8K ($18K - $13.2K) = 6.6 years (round to 7 years)

 

If I assume that we have a gross margin of $4.8K / yr after year 6 and we have an additional 7 years, I get 13 years. Not 15. What am I missing?

Thanks in advance!

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Pedro
Experte
bearbeitete eine Antwort am 13. Okt. 2021
30% off in April 2024 | Bain | EY-Parthenon | Roland Berger | Market Sizing | DARDEN MBA

First of all, you need to review terminology and be more careful on how you present things. What you have there as Profit is something else: it is the cummulative cash flow from year 1 to 5 (-32k). However, there is a mistake there, as you only start selling during year 6. So you are wrongly anticipating all the revenues by one year!

Then I don't know how you get to 13 years. If you have 5 years + 7 years, that's 12 years. 

This is the cash flow per year. Each bullet number is the year and between parenthesis the accumulated cash flow

  1. -13,5k -13,2k (-26,7k)
  2. -13,2k (-39,9k)
  3. -13,2k (-53,1k)
  4. -13,2k (-66,3k)
  5. -13,2k (-79,5k)
  6. -13,2k +30k +18k (-44,7k)
  7. -13,2k +18k (-39,9k)
  8. -13,2k +18k (-35,1k)
  9. -13,2k +18k (-30,3k)
  10. -13,2k +18k (-25,5k)
  11. -13,2k +18k (-20,7k)
  12. -13,2k +18k (-15,9k)
  13. -13,2k +18k (-11,1k)
  14. -13,2k +18k (-6,3k)
  15. -13,2k +18k (-1,5k)
  16. -13,2k +18k (3,3k) → Break Even.

(editiert)

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Clara
Experte
Content Creator
antwortete am 11. Nov. 2023
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

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Ian
Experte
Content Creator
antwortete am 13. Okt. 2021
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate

Hi there,

Pedro beat me to the answer! But I just want to add how important breakeven is. Make sure you truly understand how Breakeven works, including all of the various applications (solve for # of years, VC, FC, investment, # of units, price, etc)

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Marco-Alexander
Experte
Content Creator
antwortete am 31. Okt. 2021
Former BCG | Case author for efellows book | Experience in 6 consultancies (Stern Stewart, Capgemini, KPMG, VW Con., Hor

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