How to calculate the final value of an investment given a growth rate of 70% for 7 years quickly

Hi there,

Is this 70% per year?

In a case you would not be expected to do a NPV annuity for 7 years with the exponent.

Rather, you tend to have two options:

1. You can use the power of 72
2. You can do 70% & 7 and mutliply by that flat amount

Hi there,

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

• First of all, it's crucial to understand that for such calculations in case interviews, interviewers typically don't expect you to calculate the exact number. What they are looking for is your ability to estimate and think logically.
• Moreover, it's useful to know some key percentages and their multiples. For example, a 100% increase is a doubling, so a 70% increase, which is around 2/3 of 100%, is slightly less than doubling. Using this fact, you can estimate the value of the investment after 7 years as close to doubling each year.
• Lastly, don't forget that practice is key in improving your mental math speed and accuracy. I would advise you to regularly practice similar calculations.

You can find more on a similar topic here: Speed reading techniques.

If you would like a more detailed discussion on how to best prepare for your upcoming interviews, please don't hesitate to contact me directly.

Best,

Hagen

Hi there, 

First of all, I'd push back on the idea that you need to do it quickly. Second, I'd push back on the expectation that you actually need to do this calculation - it actually looks too complicated.

But if you want the answer to your question, I'd use the law of 72. It's a concept for finance, which basically says that you should divide 72 by the interest rate that you have (e.g., avg for index funds would be 8) and this should give the number of years it takes to double your investment (here the results would be around 9 years). 

If we apply a similar logic to your situation, I'd divide 72 by 70 (as if your 70% growth rate is a sort of interest rate) and we'll find out that basically your investment pretty much doubles every year. Then you can calculate from there how many ‘doublings’ there are. 

Last but not least, there's a strong tendency for candidates to practice significantly more complicated math than the one that actually shows up in interviews. Focus on technique and communication, less so solving complex math problems )

Best,

Cristian

Hello!

Precisely for the high amount of questions (1) asked by my coachees and students and (2) present in this Q&A, I created the “Economic and Financial concepts for MBB interviews”, recently published in PrepLounge’s shop (https://www.preplounge.com/en/shop/prep-guide/economic_and_financial_concepts_for_mbb_interviews).

After +5 years of candidate coaching and university teaching, and after having seen hundreds of cases, I realized that the economic-related knowledge needed to master case interviews is not much, and not complex. However, you need to know where to focus! Hence, I created the guide that I wish I could have had, summarizing the most important economic and financial concepts needed to solve consulting cases, combining key concepts theorical reviews and a hands-on methodology with examples and ad-hoc practice cases.

It focuses on 4 core topics, divided in chapters (each of them ranked in scale of importance, to help you maximize your time in short preparations):

·        Economic concepts: Profitability equation, Break even, Valuation methods (economic, market and asset), Payback period, NPV and IRR, + 3 practice cases to put it all together in a practical way.

·        Financial concepts: Balance sheet, Income statement/P&L and Performance ratios (based on sales and based on investment), +1 practice case

·        Market structure & pricing: Market types, Perfect competition markets (demand and supply), Willingness to pay, Pricing approaches, Market segmentation and Price elasticity of demand, +1 practice case

·        Marketing and Customer Acquisition: Sales funnel, Key marketing metrics (CAC and CLV) and Churn, +1 practice case

Feel free to PM me for disccount codes for the guide, and I hope it helps you rock your interviews!